Arlan Smartagents - Vacant Homes Book

TIPS AND TRICKS TO SELLING YOUR VACANT HOME

Celest Secrist

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Table Of Contents

To Rent Or To Sell? That Is The Question

A Guide To Investing In Rentals

Property Management 101

Not Living In Your Home Makes It Easier To Sell

Choosing The Right Agent

Why Changing Things And Small Improvements Can Gain You Thousands 56

Marketing A Non-Owner Occupied Home

Using Curb Appeal To Sell Your Home For More

Importance Of Good Pictures

10. Staging Solutions And Options

11. Safety Points While Selling A Non-Owner Occupied Home

12. Selling A Home Out Of State

13. Negotiating While Selling A Non-Owner Occupied Home

102

14. A Good Agent Can Help Sell A Non-Owner Occupied Home

110

15. Mistakes To Avoid While Selling A Non-Owner Occupied Home

116

16. Closing The Sale On A Non-Owner Occupied Home

122

Foreword When I first ventured into the real estate industry years ago, I did so with the hopes of helping sellers like you avoid the headaches often associated with the home-selling process. In my years of experience, not only have I helped alleviate the stress of selling for numerous clients, but I’ve also accumulated years of knowledge to help them get more money for their homes in the least amount of time. I decided to share all of my expertise in one place with potential clients. And that’s why you’re receiving this book. I want to help you have the best possible home-selling experience. And by that, I mean I want you to 1. Get the most money possible for your home, 2. Sell in the least amount of time, and 3. Avoid the headaches most commonly associated with the home-selling process. Think of this book as my gift to you. It contains insider advice on the home-selling process to help you achieve your ultimate real estate goals, including:

• Secret strategies to sell your home for more money • Marketing techniques employed by top agents • Advice on how to appeal to today’s buyers • And much, much more

If, after reading through it, you want to hire me to help you sell your home, I’d be more than happy to meet with you to discuss a specific plan to sell your home. Happy reading!

vii

About Celest Secrist Celest Secrist was born and raised in San Diego County with four sisters by her father and mother. After serving in the United States Navy for 20+ years, Celest’s father made the decision to retire and plant family roots in North San Diego County. Now as a wife and mother, her and her contractor husband, Jonathan, are continuing that legacy by raising their five children in sunny San Diego, the place they both have always known as HOME. While attending school growing up and working in the corporate world, Celest has grown her knowledge of the local area reaching as east as Santee, as far west as the coastal city of Carlsbad, as far north as Escondido, and as far south as El Cajon. Now as a mother of five active children who love participating in sports year round, she has expanded her knowledge into Riverside County and further south to California/Mexico border. Celest’s corporate work experience consists of working with two Fortune 100 companies that are well known for their exceptional customer/member service standards. She brings that level of service to all her clients in any and all real estate capacities she is serving them in. Which led to her decision to join Team Foote Real Estate at COMPASS. Team Foote believes in providing the best real estate experience possible for their clients. They achieve this by providing concierge style treatment with the goal to help everyone find their place in the world. They are real estate experts who specialize in working with families, individuals, executives, military professionals, athletes and coaches to buy/sell a home or relocate in and out of California. Their proven marketing and selling strategy has brought success to many of their clients no matter what side of the transaction they are on.

Not only does Celest bring extensive local knowledge and

exceptional client service, she also has a broad understanding of the real estate industry. Her past work experience in the banking arena not only covered operation management but also lending protocol for products such as mortgages, business loans, and personal loans for both civilian and military personnel. In addition, Celest is well educated in real estate investing strategies and processes which she put into practice when doing home valuations for investment firms looking to maximize their investment opportunities. When not serving real estate clients, you will find Celest assisting others in achieving optimal health and guiding them in living their best life as a COPE Certified Health and Wellness Coach. She also devotes her time as a parent volunteer at her children’s school, Maranatha Christian Schools, which has provided an great environment for her children to grow in their talents and skills with the encouragement of an amazing community surrounding them.

CHAPTER 1 To Rent or To Sell? That is the Question

The decision whether to rent out or to sell a non-owner occupied home often arises in residential real estate sales transactions. Real estate is a prime investment. For most Americans, it is their largest investment, with the equity built up in the home of genuine importance in retirement planning. It may be an attractive proposition either for long-term investment or immediate cash flow if a homeowner has the opportunity (and financial ability) to become a landlord and rent out a home while affording another. A family may arrive at a point where more room is needed, or a change of location desired, or a new job requires a relocation that causes someone to move, yet rent their house to tenants. Other situations where it might be more practical to rent out rather than sell out could involve a home that has languished on the market or where the owner is “under water,” the mortgage being more than the home value. By 2016, American home prices had recovered nearly all the losses from the 2006 downturn, although when adjusted for inflation, prices are still 20% below the 2006 peak. Renting your home versus selling has many factors to consider. For example, is real estate a good investment in the overall economy? Is the housing market in general moving up or down? If waiting two or three years will see substantial appreciation in local home prices or if home prices have been depressed but are slowly rebounding, it may be better to rent out your home than sell now. 2

It makes sense to keep a house as an investment if it shows future growth in worth, provided you have the wherewithal to maintain its value with conscientious renters and appropriate upkeep. In a general down market, it could also make sense to hang onto the home and realize rental income until the market recovers.

A MAIN REASON TO SELL — NOW

The local situation is a big factor. Is the home in an area of economic stability and rising house prices or in a steadily decaying area? That the home is in an increasingly unstable neighborhood is economically a reason to sell quickly. Should the value of the entire area have vastly decreased, it is hard to know when it will stop, or if it will stop at all. Consulting with a real estate agent who has experience and knowledge about dropping neighborhood value will help you in figuring out what to do. If the agent believes that the value is not going to go up anytime soon, it is best to sell your non-owner occupied home as soon as you can. Using a real estate agent to sell your non-owner occupied home will make the process go more smoothly, especially if you need to sell it within a short period of time.

ISSUES IN DECIDING TO RENT YOUR NON-OWNER OCCUPIED HOME

There are issues that will determine whether you can, or should, rent your home rather than selling it. Renting costs. Consider the costs in renting your home to decide if you can afford to go that route. Determine the going rental rates in your market using tools like the MLS listings, “shopper” guides, and online websites. Look for comparable properties in your neighborhood to estimate the monthly rent your home

could bring. Note features such as square footage, number of rooms, and upgrades such as granite kitchen counter tops. Take location and proximity to desirable schools into consideration while looking for comps. You can also talk to real estate agents and property managers to get their take on pricing. If it turns out that you cannot cover your mortgage with the projected rent, then calculate how much of a loss you can take to still be able to afford to rent the house. In addition to mortgage payments, there are taxes, upkeep, and utilities to consider. Your home-sale situation. Your own economic circumstances may play a role in determining whether to rent your home or offer it for sale. Some sellers must evaluate whether they can afford to sell their home. If not, renting is a viable alternative. Here is an example of a situation where a couple had to examine how affordable it was for them to sell their house. The couple live in an area of Florida where houses have dropped in value since the peak in 2006, the same year their house was purchased. As they debated whether to sell their home in 2011, they realized that if they chose to sell, they would be forced to take a $50,000 cash loss, not including closing costs. They looked at the numbers and decided they could not afford to sell their home. For them, it made more sense to rent their home and purchase a second home. When you rent, you may take a loss monthly, but you do not have to come up with the cash to satisfy the loan immediately upon sale. If you sell at a loss, then there is no tax benefit. The couple bought some time for real estate prices to further recover. Beneficial tax deductions of renting a home. For homeowners in need of tax deductions, there are benefits to renting rather than selling a house. You can deduct expenses related to owning and

managing your property when you rent it. This includes mortgage interest payments, insurance, property taxes, maintenance, fixtures, cleaning services and even travel and local transportation expenses incurred in maintaining and managing the property and rent collection.

PROS & CONS OF RENTING OUT

The biggest advantage of renting out your non-owner occupied home is gaining an additional source of income. This extra money each month will help you pay property taxes, mortgage, and utilities (unless you rent with the condition that tenants pay for utilities each month, which is completely your choice). It is possible to return some profit. Another advantage is the increase in the value in your non-owner occupied home through appreciation and/or by having some renovations done for your tenants which could end up becoming an enhancing investment at ultimate time of sale. For example, finishing the basement and adding a kitchen and a bathroom will turn it into a basement apartment, and increase the home’s value for resale. By renting out your non-owner occupied home, you will avoid squatters, vandals, and thieves. For example, if you own a non- owner occupied home and you are rarely there, squatters and vandals are going to take notice. Therefore, it is best to rent it out even short-term, so there is someone living there if you are not planning on quickly selling it. You may get lucky and even have tenants, who can help with maintaining your property. This could be anything from lawn care to plumbing issues. A tenant could even become a future buyer for your property. One con to renting out is that you are the landlord with the obligations, responsibilities, and headaches of that role. Property management is a dynamic activity, meaning you do not simply

rent out your home and await income and tax benefits. There is regular and emergency maintenance (e.g., mowing and the hot water heater that bursts at 3 AM.) Bad tenants are a serious concern for owners renting houses. They cause damage to property, are late on rent payments, or don’t pay rent at all. This will cause additional expenses for repairs, perhaps involve legal fees for eviction proceeding, and may eliminate the benefits of renting out your property. Background checks and requiring references on potential tenants is advised. Another con if you are expecting to sell within a few months to a year or two is that having tenants in the home can make the home more difficult to sell. For example, say you have let your tenant know that you are planning to sell, and that they must relocate within two months’ time. If they do not have options, they may drag their feet and make it as difficult as possible for you to prepare the home to sell. Whereas, if your home were empty, you could easily clean up, and get the property ready for the potential buyers, without having to work around your tenant’s schedule. Converting residential to rental property may involve capital gains tax. If you lived in the house for at least two years, then rented it out for under three years, you might be able to use the provision that allows you to exclude up to $500,000 of gains tax free. If you plan to sell a home you’ve converted to rental property, you should consult an accountant or tax expert.

CHAPTER 2 A Guide to Investing in Rentals

Rentals are another great way to earn a profit. Let’s take a look at the benefits and risks associated with this type of real estate investment:

FINDING THE RIGHT PROPERTIES

There are plenty of different kinds of rental properties to invest in. The first decision is whether you’re interested in commercial or residential properties. If it’s the latter, do you want single- family homes, multiple-unit homes, or apartments? We’ll get into the details of these different types of properties in a little bit. But regardless of whether you’re planning to rent out a condo or a strip mall, it’s important not to look for the cheapest properties. When it comes to rentals, this isn’t necessarily the right strategy. You should be more concerned about how much money you can make with the rental. Figuring out the potential profit involves looking at the homes in the area and conducting a comparative analysis of the amount you can expect to get in rent. Once you’ve got that, look at the property you’re considering, and calculate all your potential expenses, including mortgage payments, insurance, property taxes, utilities not paid by renters, maintenance, and repairs. Is the amount your renters will pay greater than all these expenses? One method people use to answer this question is the “One Percent Rule.” This means that the amount you’ll get in rent before expenses is at least 1% of the purchase price. In other words, if the home is $100,000, you can rent it out for at least

$1,000 per month. This means you’d bring in 12% of the purchase price by the end of the year and equals about a 6-8% net profit after expenses. Keep in mind that the nicer the neighborhood is, the lower the profits tend to be. Another important aspect of investing is remaining aware of the market (while remembering it can be unpredictable). Do your research to see learn about property values, including why they’ve gone up or down. If there’s been a positive change in the area, this could be a good place to buy. However, you also need to look at the market as a whole. If it’s going up, it can also go down. Keeping up with both local and national trends can help you make better investments. When you’re working the figures, there are some different approaches for commercial properties. The cost approach includes the current value of the land plus the cost of the building. The sales comparison approach looks at neighboring properties’ values. The income capitalization approach looks at how much revenue the property could bring in once the purchase price and operating expenses are considered.

GROSS RENT MULTIPLIER AND CAP RATE

Gross Rent Multiplier (GRM) and capitalization rate value (also known as cap rate) are the two main ways to value properties. The GRM uses a property’s gross income and involves ratioing that with the property’s price. Ultimately, this method helps you determine how long it will take for a property to pay for itself. To figure out the GRM, you simply divide either the fair market value or asking price by the likely annual gross income from rent. The number you get from this formula is how many years it will take for the rent to pay off the property; obviously, the lower the number, the better. The ideal length of time is between four and

seven years.

GRM: fair market value OR asking price / gross annual income = time to pay off property with rental income Of course, it’s not actually this simple. This formula neglects all the other costs that could come up, including general maintenance as well as both expected and unexpected repairs. So why use GRM? Ultimately, it’s most helpful when you’re trying to decide on which property to buy. You can look at the GRM across all the properties you’re looking at (as well as others in the market). The cap rate differs from the GRM because it looks at Net Operating Income (NOI) in relation to the current market value. It looks at general operational expenses and vacancy rates, meaning it’s a more accurate way to see if a rental property’s viable. To figure out the cap rate, you divide the NOI by the current market value. You then multiply that by 100 to get a percentage.

Cap Rate: (net operating income / market value) x 100

Of course, you’ll need to do your research to determine market value and operating income. Investors often analyze cap rates of similar properties to figure out what rate they need. Sometimes, investors have the cap rate already. In that case, they can use it to figure out the market value of the property:

Market Value (Using Cap Rate) net operating income / cap rate = market value

As I mentioned, cap rate is the most accurate — and therefore preferable — way to figure out whether to purchase a rental property. That’s why it’s the method that’s used most frequently by anyone in the real estate business, including appraisers and banks. However, it can be tricky to determine the cap rate for a property that’s already sold because you don’t know what the operating costs are. Unlike with GRM, there’s no ideal range for cap rates. They vary from market to market to the extent that in city A, anything below 6% should be passed on, whereas in city B, a 4% cap rate is something to jump on. Pro Tip: One trick of the trade for getting the best deals on residential rental properties is to purchase them during the offseason. Fewer people buy in the winter, so you’ll have less competition, and sellers might be more willing to negotiate.

COMMERCIAL VERSUS RESIDENTIAL PROPERTIES

A general rule of thumb (which can vary by state) is that a building with four units is residential, while a building with five or more units is considered commercial. Each type of property will be subject to different laws and taxes. Regardless of which type of property you use, you’ll still need to consider all the factors above. That said, there are differences to consider when choosing between commercial and residential properties. Residential properties are usually rented for a year (no more than three), whereas commercial properties tend to have longer leases (up to nine years), meaning less turnover and therefore less risk of vacancy. While profits can be higher in single-family homes, it’s an eggs-in-one-basket situation, and vacancies can be

especially detrimental. If a renter vacates, the place must be cleaned up and fixed, as necessary, then the owner needs to find new renters. This process can sometimes take two or three months, which might be equal to the amount of profit the owner could’ve made in two years, had the property been continually rented. Commercial properties often come with higher expectations. Owners need to be extremely knowledgeable about what’s required for these types of properties and how to handle things if, for example, a large multi-unit apartment building becomes infested with bed bugs (which, by the way, is a class-action suit waiting to happen). When it comes to gross rental yields, residential properties tend to get 3-5% with the net profit being around 2-3% per year. Escalations (rent increases) tend to be between 5 and 7% each year. Commercial realty’s gross rental yields are significantly higher at 6-10% per year with escalations between 3 and 5%. If you take a long-term look, residential properties yield about 8 or 9% per year over the course of 10 years, whereas commercial properties yield around 13-15% per year during the same timeframe. While any income received from either type of property will be taxed, only residential properties with a loan may qualify for a tax break, depending on current tax law. If your goal is to take on multiple rental properties, it’s easier to do so with commercial properties due to Real Estate Investment Trust (REIT) regulations. Residential properties cost less to purchase, and you have a lower holding period for returns. However, they tend to bring in lower rent. Conversely, commercial properties get a higher yield and returns. Also, their property values are more stable. However,

they may require hiring a property manager, having more (or more complicated) leasing strategies, and require a more detail- oriented approach. Residential properties need to be move-in and live-in ready and their size isn’t too critical. In contrast, commercial properties can be a warm or bare shell and they might need to be a certain size to make the property practical for potential leasers.

CONSIDERING AN LLC

Many people who own rental properties opt to set up their business as an LLC. This means that all properties are owned, bought, and sold through a business rather than through a person. Also, the property itself is considered a business, so when you sell the property, you sell the business. The main reason that many people choose to set up an LLC is that it provides protection from being sued on a personal level. However, this doesn’t stop the company from being sued. This means that any money you have in your personal bank accounts and any other personal assets would be safe, but any business bank accounts wouldn’t be. Keep in mind that insurance can also protect you — to a point. Rental property owners should always have a dwelling policy (also known as landlord insurance). The policies vary, but if something happens, you could get either replacement cost or cash value. Some also include loss of rental income. However, insurance might not cover all costs, and it doesn’t keep lawsuits away, so even with good coverage, your personal assets might be in danger. Setting up an LLC can cost anywhere from $50-$150 if you register through your state, up to several hundred dollars using a company like LegalZoom, or up to $2,000 if you use an attorney.

There might also be annual fees and taxes, depending on your state. Also, keep in mind the LLC doesn’t pay taxes — the owner does. However, if there are multiple owners, the LLC has to file its own taxes, which might cost more money, depending on if you pay someone to do your taxes. LLCs can also be set up as an S-Corporation or a C-Corporation. This might reduce self-employment taxes, but you should talk with a professional to see which setup is best for you. A few things to keep in mind regarding LLCs and real estate: If you set up an LLC after you already own a rental property that has a mortgage, it’s possible that property can’t be part of the LLC. Lenders might think it’s a sale, which would mean you’d have to pay whatever’s left on your mortgage. Other possibilities are losing a low interest rate or maybe even losing your mortgage altogether. This doesn’t mean any of these things will happen, but it shows why it’s so important to know the requirements ahead of time! Second, you should never use your LLC money to pay for something personal or your personal money to pay for something business-related. If you ever get sued, this would be discovered, and the opposing lawyer would point out that your LLC isn’t a separate entity (and win), meaning you’d lose all the protection that a valid LLC provides.

CHAPTER 3 Property Management 101

In order to have a successful rental property, you need to know about all the different aspects of property management. This includes finding, keeping, and dealing with tenants, lots of legal information, and taking care of the property itself.

WEED OUT "BAD APPLES"

Without a doubt, the most important step for an investor 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 tenancy 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 property. This protects yourself and your company, reduces your risks, and can help you 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 (FHA) or Americans with Disabilities Act of 1990 (ADA), or favoritism. Minimum qualification standards also keep you on track so that problem tenants don’t slip through the cracks. Having standards in place 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 even lawsuits. Minimum qualification standards also help reduce the risk of an FHA 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 FHA and ADA laws.”

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’s 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 by 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? 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. 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 state or 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 or government 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: You must make sure that whatever policies you put in place don’t violate any Fair Housing Act (FHA) laws. It’s a good idea to research FHA 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? Many landlords don’t wish to attract these types of tenants, as they’re often viewed as “higher risk” and “lower quality.” Will you accept Section 8 tenants? The Section 8 program allows homeowners to rent their property at fair market rates to qualified low-income tenants with a Home Forward rental subsidy. Some jurisdictions require that you accept Section 8 tenants, regardless of your personal feelings. Check with your attorney to see what the requirements are. In the meantime, determine whether you’re willing to deal with Section 8 tenants, because this program tends to involve a lot more paperwork, rules, guidelines, etc., and it’s a much different type of rental vs. somebody who’s paying you rent out of their pocket every month. 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 FHA. 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? 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 farther back in the past. What will your rules be? 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. Probably the best reference — and the most telling — will be the candidate’s former landlord(s). You should ask a former landlord

the tenant’s reason(s) for leaving, whether they paid rent on time, and how they treated the property. 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! What are your own standards and policies for a potential tenant’s outward appearance and hygiene? Will you require every person over 18 in the house to apply? I recommend you have 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 low credit, no job, a criminal record, or poor tenancy history? Even if your potential tenants are two parents with young adult children, have these children apply, too. You need to know who will be living in your home! You don’t want to be held legally liable for adult children who engage in criminal behavior because you didn’t bother to have them apply. You’ll want to avoid this situation, too: Many groups of people will try to rent a house together and have whoever looks “good on paper” fill out the rental application, while the others, who don’t look so “good,” move in later. Do the same with any co-signer on the lease. Put some policies in place as part of your minimum qualification standards. For example, a co-signer should have good — if not great — credit. Maybe you’re thinking this is overkill, that these questions are too in-depth, too “over the top,” too unnecessary, too nosy, too, well, stupid. But don’t forget: You’re letting other people — strangers — into your property to live there. While you might be tempted

to give people the benefit of the doubt and skip out on the minimum qualification standards, this is very risky and potentially disastrous. As I’ve said before, you have the right to know who is going to be living in your home, and you need to be comfortable with your decision. You’re essentially risking your property and your livelihood. Someone could stiff you out of rental payments or cause $20,000 in damages.

Set Up a Screening Process

Once you’ve determined your minimum qualification standards, you need to set up a screening process that checks all of these items for you. For example, if you want to avoid tenants with a criminal record, you can set up a process that looks into criminal backgrounds. There are many types of tenant-screening systems and software that will do most of the work for you. However, while these systems and software will check most of the major issues for you, and help you weed out the “bad apples,” they won’t find everything. Pets are a good example; they don’t normally show up on screening systems. You’ll just have to ask the candidate, flat out, as well as fill out your rental application form. Your rental application form should be thorough and cover areas often missed by screening systems, and all potential applicants should fill out the form. Not sure what to ask? Using minimum qualification standards is a good starting place, but consider putting the following questions on your rental application form: Have you ever been convicted of a crime? Do you have any pets? Will any adults over the age of 18 be living with you? Have you ever been evicted before? Do any of the people that will be living in this house smoke?

What is your monthly income? Have you ever filed for bankruptcy? Have you ever had a foreclosure or short sale? Have you ever had a vehicle repossessed? Why are you leaving your current residence?

As you can see, there’s plenty to consider when coming up with your comprehensive checklist of minimum qualification standards, and it can be a time-consuming process to put this all into place. However, it’s worth your while to do it, because, I’ll say it again, screening tenants is the most important component of renting out your property, and creating minimum qualification standards is necessary for the screening process!

GET IT IN WRITING

The lease is one of the most important steps in ensuring the overall success of your rental property management business. It can also be the most time-consuming, but trust me when I say you’ll want to spend the time to make sure every possible area is addressed. It’s not enough to have any old lease; you need a rock-solid, iron- clad lease that protects you and your property from any potential issues with tenants. Even if you’ve done your due diligence in every other matter, and even if you think you trust your tenant, a rock-solid lease is essential.

Location, Location, Location

You’ve likely heard this phrase in real estate before, but I mean it differently here. When drawing up a lease, you must consider your location — where you live. Every area, county, municipality, and state might have different rules and regulations regarding leases, so do your research.

Many newbies to the rental property business mistakenly assume they can just look up a lease template or a lease example online and use that as the basis for their own lease. Or worse, they’ll just plain-out copy it and use it as the lease! Big mistake. First, the lease will either be too generic and not cover all the areas you need it to cover, or it will be too specific to a certain time and place that won’t necessarily apply to the year and where you live. Second, typing “free lease for rental property” or something similar on Google and then using it could get you into heaps of trouble legally because it’s not tailored to your location. Third, if you copy a contract, it could open you up to copyright infringement charges. Fourth, there’s no guarantee it’s a good lease — whoever wrote it might’ve done a bad job to the point that it could even be thrown out if a court case occurred. Your lease needs to be both location-specific and up-to-date because laws are always changing. You can’t do this alone, unless you’re an attorney yourself or have experience in drawing up leases. My recommendation is to hire the best attorney in your area — an attorney who’s intimately familiar with the area, an expert in rental property management, and has experience in tenant complaints and rental-related lawsuits. Consult with your attorney for clarification and confirmation on all location-specific laws about everything that you can and can’t (and should and shouldn’t) include in your lease. Your attorney should come highly recommended and have the experience, success stories, testimonials, and references to back them up. Expect to spend at least $500 to upward of $1,000 for a good, rock-solid lease that protects you and your home from any potential problems. However, if there’s just no way to work that into your budget, there are other options, such as purchasing state-specific legal forms online, like ezLandlordForms.com or

USLegalForms.com. Exercise caution in ensuring they are state- specific and up-to-date. One last (and potentially most economical) option is if you use or have access to property management software. Some have lease agreements built into the software program. Again, ensure the lease is state-specific, up-to-date, and not a copycat.

25 ITEMS EVERY LEASE SHOULD HAVE

No matter where you get your lease, it’s absolutely imperative that it has the following items below. As always, be sure to talk with an attorney for guidance.

1. Monthly Rent Due

The first detail to include in the lease is the monthly rent that’s due. You’ll need to take some time to figure out a fair amount for both yourself and for your tenants, using your mortgage payment plus a percentage on top as a baseline.

2. Instructions for How the Tenant Should Pay

Next, have exact instructions on how the tenant should pay you their rent. If they’re going to be mailing you a check, give them the exact address. Don’t allow them to make up excuses for why the rent is late because they don’t have the right address (or claim that they don’t) to send the payment to you. You might also want to include online options to make it as easy as possible for tenants to pay you.

3. Rent Due Date

Include a clause on the exact due date for the rent. The date should be the same date every month to avoid confusion — even if the date falls on the weekend some months.

4. Late Fees and Penalties

If you don’t have any late fees or any penalties for unpaid rent or rent paid late, then it’s going to be hard to enforce payment on time. You need to ensure your late fees and penalties are clearly stated in the lease.

5. Security Deposit

Explain the amount of security deposit required upfront — before the tenant moves in — and all the rules that go along with it. This includes your right to “go after” the security deposit if there are any issues with the tenant or your property, and especially if there’s damage to your property to the extent that repair is required on your end to fix damage done by the tenant.

6. Non-Payment of Rent

Just as you need to detail late fees and penalties, you also need to spell out what happens if they don’t pay you the rent at all. Include your right to file for eviction within a certain timeframe, etc., but also include any grace periods, if applicable. Above all, you need to protect yourself. Your tenants must pay you in full, on time, every month, and if they don’t, there will be consequences, such as eviction.

7. Alterations

Stipulate whether a tenant can make any type of alteration(s) to your home and property. For example, can they repaint a room? Replace the floor? Remodel a certain area? Think of every possible scenario; find out what is legal, find out your rights, and spell it out in the lease.

For example, you might allow certain types of minor remodeling

but would still require your permission. Be sure your tenants know they must ask for your permission first. This should be outlined in the lease. Of course, most rental property owners don’t and wouldn’t allow most types of remodeling, but you’d be surprised at what happens behind closed doors in between inspections!

8. Appliances

Don’t forget to stipulate which appliances are included in the property for use by your tenant. Note each model, make, colors, etc. Why get into specifics? Quite simply: It reduces disputes. Let’s imagine that a tenant moves in and you supply a washer without a dryer, so the tenant brings in their own dryer. But when they move out, they bring their dryer and your washer with them! Without this specific information included in your lease, you could go to court to dispute the matter, trying to get back your dryer or collecting on the security deposit — but it becomes a matter of your word against the tenant’s. Avoid this situation (and other similar ones) by listing and detailing each appliance you own, and which ones your tenants are allowed to use. You might even want to take pictures to protect yourself.

9. Smoking

A big issue between rental property owners and tenants is smoking. You need to get very specific about your rules about smoking, or your tenants could easily find loopholes and you could be left with smoking stains, lingering smoke scent, and other damage to deal with before your next tenant can move in. Be as clear as possible.

For example, consider:

Will you allow smoking at all? Will you allow smoking outside, but not inside? Will you allow smoking in the backyard, the garage, the porch, etc.? How many feet away from your home will you allow smoking (if at all)?

10. Pets

Along with smoking, pets can be a major area of contention. This is another area where you need to be careful and specific about your rules. If you don’t allow any pets under any circumstances, then be sure that’s clearly spelled out in your lease. Some rental property owners find this is the way to go, just to simplify things. However, there are plenty of pet owners looking for a place to rent, and some owners prefer to open up their “base” of tenant applicants by allowing certain types of pets under certain types of rules. If you do decide to allow pets, include a pet deposit, and determine how much this will be and whether it’s refundable. You’ll also need to include penalties in the lease penalties for either a) property damage done by a tenant’s pet(s); or b) tenants sneaking in pets if you have a strict no-pet policy. Ask your attorney about your rights to seek reimbursement if a tenant’s pet causes damage to your property.

11. Use of Premises

Carefully spell out the use of your premises. Some examples are outlined below. Residential. Is the property for residential purposes only? This might seem like a no-brainer, but times have changed, and more and more people are working from home, whether operating

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