In this article my goal is to take you, the landlord of a single-family rental, through a simplified rental life cycle and offer key concepts for each phase. I hope these ideas will help you identify best practices that will help you manage your rental investment with less stress!
A Vacant Home
Finding Great Tenants
When setting the price for your rental, remember that the current rental market will ultimately determine the price. Here's what I mean: You may have a number in your head. Who knows where you picked it up: Maybe you saw it on Zillow? Maybe a neighbor told you what rent they're getting? And maybe these sources will help you set your starting point. However, you will know very quickly if your price is too high based on how many people are contacting you.
Granted, there is indeed a balance to be struck between too high and too low; and ideally you will be able to rent at a price point on the higher end of the spectrum. That said, you want to avoid sitting on a number that the market will not support.
Let's say that you are holding out for $2,400, but the actual price the current market will pay is $2,200. And let's say it just so happens that you could have rented your home a month sooner at the lower price. That's one more month you had to pay the full mortgage. Depending on what you eventually rent the property for, you may never recoup that month, or it will take a long time to break even.
Also, keep in mind that a FICO score doesn't provide enough information to evaluate if someone will be a great tenant.
First, you want someone who's gross income can support the rent as well as other living expenses. (The standard in the residential property management industry is that minimum monthly gross income is 2.5 to 3 times the monthly rent, depending on how prohibitive you want to be). You also want someone who has a history of paying rent in full and on time, who has a history of taking care of their rental property and who has a history of being a good neighbor.
You can ask for current pay stubs (or bank statements if the applicant is not on a traditional payroll) and contact info for past landlords.
In our screening, we also look at the details of someone's credit history. This is valuable because it tells a story. Let's say the FICO score is low, but it's related to medical expenses from an accident or illness? Or it's related to a foreclosure? If we excluded people who have been through these unexpected life situations, we'd miss out on a lot of great tenants.
So look at a broader picture, not just a FICO score.
During the lease
Holding on to Great Tenants
If the first goal is to find a great tenant, the second is to hold on to them and avoid frequent turnover. Survey after survey finds that the most important factor to limiting turnover is how well maintenance issues are handled.
So take care of the people renting your home and they will take care of you. How will they take care of you? The obvious is that they will stay longer.
The less obvious is often missed by private landlords: your tenant is going to take care of the home as well as you do.
Do you keep the carpets in the home way past the life expectancy? Do you allow other flooring to peel or wear down to the concrete?
Do you let the yards deteriorate, hoping the tenants are taking care of them? Do you let the tenant's maintenance requests sit for a long time?
If you take care of your home, you will attract like-minded people.
Moving out
When it comes to the Security Deposit, being fair is being wise. My intent here is not to go into the details of the security deposit transaction (although there are many sources for this, one being www.courts.ca.gov), but to emphasize that being fair will help you steer clear of possibly serious consequences for not complying with the law.
One basic aspect of the law is that you can deduct for damage but not for "normal wear and tear." However, evaluating what constitutes "normal wear and tear" can often be subjective. If you're fair, and you stick by the law, this transition has a much better chance of going smoothly. If, however, you push the boundaries on "normal wear and tear", you can end up in small claims court.
So, if you've had a great tenant for a few years, be fair in your evaluation. You and your tenant will be better off.
Schmidt can be reached at [email protected]
A Vacant Home
Finding Great Tenants
When setting the price for your rental, remember that the current rental market will ultimately determine the price. Here's what I mean: You may have a number in your head. Who knows where you picked it up: Maybe you saw it on Zillow? Maybe a neighbor told you what rent they're getting? And maybe these sources will help you set your starting point. However, you will know very quickly if your price is too high based on how many people are contacting you.
Granted, there is indeed a balance to be struck between too high and too low; and ideally you will be able to rent at a price point on the higher end of the spectrum. That said, you want to avoid sitting on a number that the market will not support.
Let's say that you are holding out for $2,400, but the actual price the current market will pay is $2,200. And let's say it just so happens that you could have rented your home a month sooner at the lower price. That's one more month you had to pay the full mortgage. Depending on what you eventually rent the property for, you may never recoup that month, or it will take a long time to break even.
Also, keep in mind that a FICO score doesn't provide enough information to evaluate if someone will be a great tenant.
First, you want someone who's gross income can support the rent as well as other living expenses. (The standard in the residential property management industry is that minimum monthly gross income is 2.5 to 3 times the monthly rent, depending on how prohibitive you want to be). You also want someone who has a history of paying rent in full and on time, who has a history of taking care of their rental property and who has a history of being a good neighbor.
You can ask for current pay stubs (or bank statements if the applicant is not on a traditional payroll) and contact info for past landlords.
In our screening, we also look at the details of someone's credit history. This is valuable because it tells a story. Let's say the FICO score is low, but it's related to medical expenses from an accident or illness? Or it's related to a foreclosure? If we excluded people who have been through these unexpected life situations, we'd miss out on a lot of great tenants.
So look at a broader picture, not just a FICO score.
During the lease
Holding on to Great Tenants
If the first goal is to find a great tenant, the second is to hold on to them and avoid frequent turnover. Survey after survey finds that the most important factor to limiting turnover is how well maintenance issues are handled.
So take care of the people renting your home and they will take care of you. How will they take care of you? The obvious is that they will stay longer.
The less obvious is often missed by private landlords: your tenant is going to take care of the home as well as you do.
Do you keep the carpets in the home way past the life expectancy? Do you allow other flooring to peel or wear down to the concrete?
Do you let the yards deteriorate, hoping the tenants are taking care of them? Do you let the tenant's maintenance requests sit for a long time?
If you take care of your home, you will attract like-minded people.
Moving out
When it comes to the Security Deposit, being fair is being wise. My intent here is not to go into the details of the security deposit transaction (although there are many sources for this, one being www.courts.ca.gov), but to emphasize that being fair will help you steer clear of possibly serious consequences for not complying with the law.
One basic aspect of the law is that you can deduct for damage but not for "normal wear and tear." However, evaluating what constitutes "normal wear and tear" can often be subjective. If you're fair, and you stick by the law, this transition has a much better chance of going smoothly. If, however, you push the boundaries on "normal wear and tear", you can end up in small claims court.
So, if you've had a great tenant for a few years, be fair in your evaluation. You and your tenant will be better off.
Schmidt can be reached at [email protected]