YOUR NO-RISK GUIDE TO RENTING OUT YOUR PROPERTY
Rolanda Wilson
Table Of Contents
1.
To Rent Or Not To Rent?
2
2.
You Control The Risk
6
3.
Good Tenants = Rental Bliss
14
4.
Weed Out Bad Apples
20
5.
Red Flags
32
6.
Get It In Writing
44
7.
Regular Inspections
60
8.
Laying Down The Law
62
9.
Protect Against Damage
70
10. Fair Housing Act
78
11. Renting 101
82
12. How To Get Your Property Rented
84
13. Ongoing Property Management
98
14. How To Handle The Move
104
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!
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About Rolanda Wilson Rolanda Wilson was raised in Richmond, California with her sister and brother. As a child, Rolanda aspired to become an Accountant. She graduated from Sonoma State University with a Bachelor’s in Business Administration-Finance. Never in a million years did she think she’d stumble into the real estate industry, but you can’t always predict where or when you’ll discover what you’re meant to do in life. Rolanda was taught at a young age that if you want something in life, you must work for it. So that’s what she did. And she worked hard. As the years went by, Rolanda worked her way from New Accounts Representative to Business Analyst, never wavering in her resolve to become the best version of herself with each career move. Rolanda got into the real estate industry 20 years ago after the Dot-com bubble burst. After tirelessly searching to find a job in her beloved accounting field, she decided to expand her options to pay the mortgage on the home she purchased six months prior. She was driven by the desire not to lose her new home. She set out to learn all she could about the mortgage industry. As her career advanced, Rolanda found her stride working with Investors, First Time Homebuyers and learning about Down Payment Assistance Programs. She later became a Housing Counselor to expand her ability to help her clients. In July 2006, Rolanda opened her Brokerage, Sound Investments, Inc., to further expand services to her lifelong clients. She provides concierge real estate services from Residential Sales, Investor Sales, and Property Management
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Services where more than 80% of her business comes from referrals from satisfied clients. Rolanda has sold homes in all price ranges, from condos to small commercial properties. Her clients appreciate her flexibility, patience, ability to listen to understand their needs, analyze the market and accurately price and market their property. She is an expert in her Local Market which allows her to be a valuable resource to those looking to diversify, expand or downsize their real estate portfolio. Rolanda is deeply connected to her community. She supports and volunteers with numerous nonprofits including three in the housing industry. Throughout her career, Rolanda has earned accomplishments, including: • President of the Women’s Council of the National Association of Real Estate Brokers • Launching “FIRM” Mentorship program for Youth • Housing and Urban Development Certified Housing Counselor • Certified Probate Specialist • Serving on Realtor Association Committees • Served on Contra Costa Community Advisory Board Rolanda continues to live in the Bay Area with her family and dog. In her free time, she enjoys reading, traveling, and shopping. Rolanda aims to provide the highest level of service to her clients and takes deep pride in helping them achieve their real estate goals. She strives to maintain lifelong relationships with each client. viii
Testimonials & Reviews for Rolanda Wilson Here’s a list of people whom I have helped buy or sell a home, and what they said about working with me:
Rolanda had a tough job, but she did it!
We were tough clients! We were moving to Fairfield and didn’t have a lot of time to look at houses, having to deal with our employment demands, and all of the other challenges that came along. But, Rolanda went above and beyond to help us. Even now, one year after the sale closed, I can still call her for business and service recommendations in the area — she knows just about everyone, and is very happy to help.
Rolanda is the best agent in Richmond!
I’ve used Rolanda twice so far, and I was impressed both times. I bought my dream home with Rolanda two years ago. She worked long and hard to find us the perfect home. And she helped us with the purchase and sale of our previous home. Everything went quickly and smoothly. All of my real estate deals were done very quickly and professionally. Rolanda is honestly the BEST in her business. I would highly recommend her.
Rolanda's perseverance got me the house
Rolanda is an amazing Realtor. She showed so much patience, expertise and wisdom with my family's home purchase a few years ago.
Very attentive to concerns, details, and negotiations
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Rolanda is patient and listens
Rolanda helped me find a house by literally picking it out for me. Every house I wanted to go to, I got there and didn’t love it. Rolanda was busy taking note of the likes and dislikes I was stating and said “I have a house that you’re going to love”.... AND I DID! I went back 4 or 5 times to show other members of my family, and she accommodated me without complaint. I was a first-time homebuyer, and she walked me through the steps of everything, gave me advice, and constantly followed up to make sure I was doing OK. With her help, I was able to close on the house early. I would recommend Rolanda to EVERYONE, buying or selling. Rolanda made it so so easy. She guided us through the entire process. She recommended great people to work with every step of the way. She was available 24/7 to answer any questions we may have had. With her high standards, expertise in the industry, and patience, we would recommend her as a Realtor to anyone looking! She was amazing! Rolanda was a gem. In addition to being highly knowledgeable about the real estate market, with many years of experience, she is a consummate professional. She was extremely easy to work with, gave me very good advice about preparing my house for sale and was very responsive during the entire process of receiving offers, selling and closing. I would work with her again in a heartbeat. She is that good.
Rolanda is the first agent I would call
Rolanda and her team were able to rapidly list, show and sell my property. Being an expert in real estate, she was spot on in his pricing of my property and getting this deal completed. Overall, I highly recommend her and her team. If I want to buy real estate, Rolanda would be the first person I’d call.
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Rolanda got us an offer in five days!
Rolanda was the consummate professional during our stressful and difficult process. In the midst of juggling a ‘failed’ marketing effort with another agent, she presented a well thought out plan and strategy to sell our home in short order. We needed to move quickly. She helped alleviate that pressure by securing an acceptable offer with 3 days of listing. We put pressure on her, and she delivered. We couldn’t thank her enough. Rolanda always made herself available to answer questions. She worked hard to sell our home and find the best fit for our new home. Rolanda and her team worked with us through the entire process and kept us calm when we got anxious.
I am 100 percent satisfied!!
Rolanda is professional and knowledgeable about everything. She is also always available. I would definitely recommend her to anyone. Very smooth transaction from start to finish. I felt confident with her experience.
Efficient communication and service
Rolanda and her staff were very helpful in selling my condo in Pinole. They kept me informed frequently with email, sending reports on showings, offers, and feedback from potential buyers. I was are very satisfied.
Excellent experience topped with a personal touch
Excellent experience all around, not only knowledgeable but Rolanda and her team have a very personal touch I felt like family throughout the entire process. She always took his time; we never felt rushed or like “just a number.” I sold my home and
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bought with her. We had lots of questions she gladly answered them with no problem and guided us through the entire process, eliminating lots of stress. I truly appreciate that and would recommend her and her team to family and friends.
Sold our home in a week!
Rolanda was an absolute dream to work with. Professional, responsive, efficient, and my moral support when in time of need...unfortunately for her. We sold the home within a week. What else can you ask for? Grateful, grateful, grateful!!!
Rolanda takes care of our homes as if they are hers!!
After a bad experience with our property being mismanaged, Rolanda got our property in top shape and recouped unpaid rent.
Rolanda is a pleasure to work with
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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? 2
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
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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
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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.
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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 6
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
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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
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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.
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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
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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
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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.
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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 14
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
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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
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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
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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
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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.
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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.
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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.
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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-
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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.
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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 24
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
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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. 26
• 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?
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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.
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