Richard Davis - YOUR MODERN ONLINE PROPERTY MANAGEMENT SYSTEM

YOUR MODERN ONLINE PROPERTY MANAGEMENT SYSTEM

Richard Davis

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

Foreword When I first ventured into the real estate industry over 40 years ago, I did so with a plan to building a tax sheltered, permanent income. I help my clients get the most money for their properties and help you buy and sell at the right time. I decided to share all of my expertise in one place with my existing and potential clients. I want to help you have the best possible buying and selling experience. 1) Get the HIGHEST RETURN possible for your real estate 2) SELL AT THE RIGHT TIME! 3) Avoid the headaches most commonly associated with the selling process 4) Avoid paying Capital Gains Tax on your buildings. Think of this book as my gift to you. It contains insider advice on the real estate selling process to help you achieve your ultimate investment goals, including: • Strategies to sell your buildings for more money • Modern marketing techniques employed by top investors • Advice on how to appeal to today’s investors • How to postpone or even avoid ever paying taxes If, after reading through it, you want to speak with us to help you, we’d be more than happy to meet with you in person or on the phone to discuss a specific plan to sell your property.

Richard Davis www.InvestmentRealty.US KeystonePennsylvania@gmail.com (717) 778-7309

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InvestmentRealty.US by Richard Davis

Real Estate is one of the most profitable and historically safe methods of investing. We have all witnessed the volatility of the stock and bond markets. We wish to achieve a diverse and and profitable investment portfolio. Allow me to show you why you should be putting your money to work in specialized real estate markets with a quality management company. I specialize in Investment Real Estate. I have been licensed and actively investing for over 40 years. I was the co-founder and broker of Investment Realty, Inc and I was a Commercial Realtor with Real Estate World of Florida, selling businesses, multi-family and commercial real estate. I have always been passionate about the real estate business. I took the Maryland Real Estate Sales class and got my license while in college at the age of 19. My first sales position was with Robert L. Gruen who was the President of the Montgomery County Board of Realtors. Gruen provided an incredible place to work with multiple offices and around 75 agents. He was a seasoned broker and a great mentor to me! As soon as I was eligible, I studied for and passed the licensing test to become a Broker and I teamed up with Bob Grimes, one of the top brokers in central Maryland. Together we started Investment Realty, Inc., located in the historic district of Frederick, MD on W. Patrick St. We specialized in the sales and property management of single family and multi-family dwellings as well as commercial office buildings. We also founded a licensed construction company, Davco Industries, Inc., where we did land development. We laid in utilities and built county roads. Once the county roads were iv

in, we built and sold custom houses and office buildings.

I have always enjoyed being a student of the real estate business and have studied the trades that are affiliated with investing. I have held licenses as a Mortgage Broker, a Stock Broker, an Insurance Broker and Public Insurance Adjuster. I was also a certified Roofing Contractor. I eventually sold that division, I’m too old to be climbing on roofs! I still hold the highest Certified General Contractor license available in the state of Florida and I’m also licensed in Pennsylvania. My licenses have given me the knowledge and background to fully understand investing and to participate in all phases of the investment real estate arena. I have bought and sold hundreds of properties. I have renovated hundreds more including work that we did in The White House in March of 2001. I did the project estimating and project management for renovation work that we did at Reagan National Airport, Howard University’s Law Library, Loudoun County’s new Court House and we built from scratch the Six Flags Wild Adventure Park in less than 4 months. I have an expanded list of my work-related experience later in this book. My goal with this book is to help you get in the game, to expand your existing real estate knowledge and to help you build a profitable real estate portfolio. Read the book, go to my website. Meet me for an in person or virtual cup of coffee to discuss the best way to expand your real estate horizons. You’ll be glad you did!

My best regards, Richard Davis

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 POTENTIAL

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 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 ABC 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

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 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 to evict 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 there’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

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 12

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 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, fully furnished basement, 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 3, 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 22

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 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 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. 24

• 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 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 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 apply, too. You need to know who’ll 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, to make sure they’re on the up and up. 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 home, 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; someone could cause $20,000 in damages.

SET UP A SCREENING PROCESS FOR YOUR MINIMUM QUALIFICATION STANDARDS

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 to check out these types of issues for you. 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 is a good example—pets 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 that will be living with you in this property? • Will any adults over the age of 18 be living with you at this property? • 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 in place. However, it’s well 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! The next chapter will discuss rental applicants who give off red flags.

CHAPTER 5 Red Flags

If you’ve decided to rent out your property, and you’ve become more familiar with the screening process, reading through more rental applications, and conducting more interviews, you’re going to see some red flags. That’s just part of the process. If you see a red flag, your policy might be to just flat-out refuse to rent to that individual (depending on the nature of the red flag). However, you might be interested in digging deeper and doing your research to ensure you’ve got a good-quality tenant moving into your home, and not a “bad apple.” Here’s a list of some red flags to watch out for—red flags that should put you on alert to do more research on the prospective tenant:

SOMEONE WHO WANTS YOUR HELP WITH THE DEPOSIT

For example, let’s say you’re renting out your house for $2,000 a month and you’re asking the same for the deposit. A candidate says, “I don’t have $2,000 for the deposit right now. Can you help me out? Can you give me a break and let me pay $500?” That’s a major red flag. Most experienced landlords will respond, “No, I’m not willing to help you with the deposit.” This type of red flag can also look like somebody “offering” to pay the deposit in monthly installments. “Hey, I understand the deposit is $2,000, but I don’t have $2,000,” they might say. “Can I pay monthly payments of $300 a month for the next six months?” RED FLAG. And someone whom you might want to turn away 29

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