Where do you obtain your leases and other legal documents? Many landlords and property managers download them from the Internet, which is fine—but it’s always best to have a lawyer who is versed in landlord-tenant law look it over before you sign on the dotted line.
If you don’t have a lease prepared or approved by a legal professional, you could be setting yourself up for trouble without even realizing it. How? By either not understanding the terms of your lease, or by using one that is not applicable in your state.
We learned recently of a new landlord whose lease terminology bit her in the foot. While she thought that she made it clear that pet deposits were non-refundable, she actually states in the lease that the entire amount she was charging ($500) was completely refundable! Here is the language she used:
“Tenant shall pay to Landlord a pet deposit of five hundred dollars, zero dollars of which shall be non-refundable.”
If zero dollars are non-refundable, then the rest must be refundable, right? In addition, the lease stated that the pet deposit would be used for the purpose of cleaning the carpet. A tenant could argue that if the carpets did not need cleaning upon the termination of the lease, the landlord was not entitled to the funds. There were no other possible uses stated, so the landlord could not use the deposit to repair carpet or flooring, replace moldings, or fix any other items a dog or cat might have damaged.
Unfortunately, the landlord did not realize her mistakes until a tenant with a dog moved out and demanded the entire pet deposit returned. The tenant understood that the entire deposit was, indeed, refundable according to the lease they both signed.
The lesson here is to not only understand the terms of your own lease, but to write the lease in plain English. If you want to charge a non-refundable pet deposit, then say so. Don’t add in conditions or uses for the deposit, such as cleaning carpets.
And finally, seek expert advice on lease questions and other legal matters. It’s worth it in the long run!
Smart landlords and property managers do a very thorough job of screening tenant applicants. They check references and work places, former landlords and addresses. And of course, they have a background check and tenant credit check done.
But how many of your prospective tenants are checking YOU out? And what do you need to do to ensure you’re attracting the type of tenant you want—who will be as choosy about you as you are about them? After all, if you each choose the other, the landlord-tenant relationship will have a better chance of success!
What Great Tenants Look for in a Landlord:
- Professional behavior and associations. Tenants want landlords who are professional businesspeople. Who take their business seriously enough to belong to professional associations. If you belong to your local apartment association, the National Association of Residential Property Managers, or other group, say so on your website!
- Organization: Tenants are impressed when paperwork is ready to be signed, and when processes are documented. Do you have lease applications, background check authorizations, receipts, leases, move-in and move-out lists, emergency contact information and other forms ready to go at all times? Or are you fumbling around looking for forms? It never looks good to tell a prospect that you’ll need to get back to them for necessary paperwork.
- Great reputation: People will talk, and if your applicant asks current or former tenants about you, what will they hear?
- Reliability: Are your leasing office phones answered promptly? Even if you’re a one-person operation, it matters. If you miss calls, do you return them right away? Can tenants count on you to be available when they need you?
- Honesty: Be truthful at all times, even if that means pointing out issues with the rental apartment or house. Better that prospects know up front and make an informed decision, than starting out the relationship on a negative note.
- Communication: As in every relationship, it comes down to communication. If your skills are sub-par, good tenants will know it.
You may not realize that tenant applicants are checking you out, but it never hurts to put your best foot forward, just in case!
Out of any 10 lease applications, how many contain lies, omissions or truth-stretching? Unfortunately, many will. That’s why landlords and property managers can’t assume every applicant fills out an application truthfully. If you’re lucky, the majority will be hard-working, honest people who are simply looking for a great place to live. But can you count on every applicant to tell the truth? And how can you tell if they’re not?
Verify, verify, verify! It’s up to you to do the digging and reveal the truth.
The best way is to do that is through a thorough background check, which can reveal the following information:
- Whether the applicant has ever used another name.
- If the Social Security Number listed is valid.
- Whether the applicant has declared bankruptcy, and when and where it was filed.
- Any liens or judgments against the applicant.
- Whether the previous addresses listed are accurate.
- Any addresses the applicant omitted.
- Whether the applicant is listed as a registered sex offender.
- Any flags on any of the addresses listed by the applicant.
What’s more, a background check can also tell you whether you can be confident in accepting the applicant’s check.
Of course, you’ll need to do some verification on your own, including contacting and talking to the applicant’s previous landlords and current employer. Be sure to verify that you’re actually talking to the property owner and a representative of the employer. Look up names and phone numbers online, and compare them to what the applicant provided.
In Washington and Colorado, voters decided last year that marijuana should no longer be illegal for recreational use. Both states are hammering out rules, regulations and policies to cover this new freedom. But landlords can be stuck in the middle, since pot is still illegal under federal law. Many have added simply added marijuana smoking to their overall smoking bans to keep things simple.
But if you don’t live or own rental property in either Washington or Colorado, marijuana is still illegal. And as a landlord, you don’t have to put up with any illegal drug use on your property.
The best way to prevent it is to implement and enforce a zero tolerance drug policy—and to make sure that every applicant and tenant is aware of it. Put it on the lease application and of course, in the lease itself.
Landlords can be at great risk when tenants break the law by using their property for illicit purposes—even if they are completely unaware of it. Hands-on management and close-up monitoring with routine inspections can help you avoid this problem. Of course, you’ll need to give tenants ample notice that you plan to enter the unit, and you certainly can’t snoop through their drawers and closets. So how can you tell if illegal drugs are around?
Many landlords will tell you that their tenants aren’t all that careful when it comes to hiding their drug paraphernalia. Or, you might just catch the odor of marijuana wafting out an open window or through a vent when you’re walking around your property. Keep your ears and the lines of communication open, and you might have other tenants tell you that they’ve seen signs that could indicate drug activity.
When you suspect tenants are using, buying or selling drugs in your rental property, it’s in your best interest to deal with it. If your lease contains a clause that tenants agree to not violate laws, including possession, use, manufacture or sale of illegal drugs, then he or she is violating the lease agreement. Your next move should be to follow your states laws and initiate eviction proceedings.
Evicting over marijuana smoking might seem like evicting over beer drinking, but as long as it’s illegal, you could be open to litigation. It also sends a signal to all tenants that you will always enforce the terms of your lease, 100%. Otherwise, the risk is just too great.
Here’s a handy list of terms landlords should be familiar with.
Abandonment: When a tenant defaults in the payment of rent and indicates by words or actions that they have vacated the premise.
Americans With Disabilities Act: A law passed by Congress in 1990 requiring any business or public facility to be accessible to everyone, including those with disabilities.
Arbitration: Using a neutral third party to resolve a dispute instead of going to court.
Certified Mail: A written verification from the Postal Service that the letter you mailed was delivered to its address. It requires a signature.
Common Area: Areas generally accessible to all residents or users, such as hallways, stairways, laundry rooms, recreational rooms and playgrounds.
Co-Signer: A person or persons in addition to the tenant, who agree to be responsible to pay rent and uphold conditions of the lease.
Consumer Report: A detailed report that provides personally identifiable information relating to one’s credit, character or lifestyle. The FCRA only covers reports prepared by a consumer reporting agency.
Consumer Reporting Agency: An entity that collects and disseminates information about consumers to be used for credit evaluation.
Credit Report: A report prepared by a credit reporting service that describes a person’s credit history for the last seven years.
Credit Score: A numerical value or a categorization derived from a statistical tool or modeling system used by a person who makes or arranges a loan to predict the likelihood of certain credit behaviors, including default.
Default: a tenant’s failure to do something that the law requires.
Default Judgment: A judgment issued by the court, without a hearing, when the tenant has failed to file a response to the landlord’s complaint.
Discrimination: Denying a person housing or stating that housing is not available because of a person’s race, color, religion, sex, sexual orientation, national origin, ancestry, age, disability, marital or familial status. Treating people differently could also be considered discrimination.
Equal Housing Opportunity: Laws that prohibit discrimination in housing on the basis of race, color, religion, sex, national origin, age, disability or familial status.
Eviction: A court proceeding for removing a tenant from a rental unit because the tenant violated the rental agreement or did not comply with a notice ending the tenancy.
Fair Credit Reporting Act: The Fair Credit Reporting Act (FCRA), as amended September 30, 1997, regulates consumer credit information gathering and dissemination. It dictates seven and ten year limits on how long negative information can be reported. The Act also provides a method for correcting erroneous information in a credit file. The 1997 amendment covers landlord tenant relationships and requires landlords to notify tenants if they have been rejected because of information in their credit file or references from previous landlords.
Fair Housing Act: The Fair Housing Act, as amended in 1988, prohibits discrimination in housing based on race, color, religion, national origin, sex, physical or mental handicap, or living with children, expect that housing for older persons may exclude children.
Fees: Money collected from tenants that will not be returned at the end of the tenancy, such as for applicant screening, cleaning, pets, etc.
Guest: a person who does not have the rights of a tenant but stays in/on the premises for a set period.
Inspection Checklist: A written checklist or statement specifically describing the condition and cleanliness of or existing damages to the premises and furnishings, such as walls, floors, countertops, carpets, drapes, furniture and appliances. The statement should be signed by both the landlord and the tenant.
Lead-based Paint Disclosure: A document that must be provided to all tenants before they enter into a rental agreement on properties built before 1978.
Lease: A written or oral contract between a landlord and a tenant that transfers the right to exclusive possession and the use of the landlord’s real property to the tenant for a specified period of time and for a stated consideration (rent).
Lessee: The tenant.
Lessor: The landlord.
Market Rent: The prevailing monthly rent for comparable units in a specific area.
Mediation: A way to resolve disputes by sitting down with an impartial person to reach a voluntary settlement. Medication involves no formal court procedures, and the mediator does not have the power to render a binding decision or force an agreement on the parties.
Month-to-Month: When premises are rented for an indefinite time, with monthly or other periodic rent reserved; or from period to period on which rent is payable and shall be terminated by written notice in accordance with the lease and law.
Normal Wear and Tear: Deterioration which occurs as a results of intended use, without negligence, carelessness, accident, misuse or abuse.
Rental Criteria: A set of criteria than an applicant must meet in order to qualify for tenancy. Landlords should apply criterion consistently and fairly from applicant to applicant to avoid Fair Housing issues.
Renter’s Insurance: Insurance protecting the tenant against property losses, and liability for claims or lawsuits filed by the landlord or others alleging that the tenant negligently injured another person or property.
Security Deposit: Monies paid to the landlord by a tenant as a deposit or security for performance of the tenant’s obligations in a lease or rental agreement. Each state enforces laws that must be followed if a landlord accepts a security deposit.
Sublet: An agreement between the original tenant and a new tenant by which the new tenant takes over the lease of a rental unit. Both the original tenant and the new tenant are still responsible to the landlord
Ten Day Notice to Comply with the Rental Agreement or Vacate: A form used when a tenant breaches the lease or rental agreement in ways other than failing to pay rent.
Three Day Notice to Pay Rent or Vacate: In most state, if a tenant defaults in payment of rent, this notice needs to be served to the tenant to begin eviction proceedings.
Tenant Screening: A process used primarily by landlords and property managers to evaluate prospective tenants to assess the likelihood the tenant will fulfill the terms of the lease or rental agreement. The process culminates in a decision as to whether to approve the applicant, approve the applicant conditionally (such as requiring an increased deposit or cosigner) or deny tenancy.
Start your tenant relationship off right by knowing who you’re leasing to. Protect your rental property and assets with tenant background checks. Proper tenant screening will ensure you are leasing to the best possible tenants.
At some time, most landlords consider whether or not to hire a property manager. Perhaps your rental properties have expanded beyond what you can effectively manage; perhaps you purchased property in another town or state; or perhaps you just don’t want the hassles that come with day-to-day, hands-on rental property management.
An effective property manager will handle rent collection, fill vacancies, screen applicants, show your property, and take care of advertising, repairs and maintenance.
What To Look For in a Property Manager
You’ll want experience, of course. A good property manager has a strong set of management and organizational skills, as well as excellent interpersonal skills. He or she needs to be tough, but fair. And, the PM really needs to be a “people person.”
To choose the right property manager for you, think about your needs:
- Do you need someone who is bilingual?
- Do you want someone who can live onsite?
- Do you need someone who can take care of light repairs?
Remember, your PM is supposed to make your life easier—and your business run better. Ask for references, and be sure to speak with each one. Also, ask other landlords for recommendations.
Managing a Property Manager
Once you hire a property manager, you will need to manage him or her. Depending on your arrangement, the PM’s experience and your personal preference, your level of supervision may range from hands-off to very involved.
As the property owner, you are still responsible for the actions your PM takes, from rejecting applicants to interacting with tenants. The federal Fair Housing Act, your local landlord-tenant laws and your own rules will all need to be understood and enforced by the property manager. And if he or she breaks the law by, for example, rejecting an applicant based on family status, race or another protected factor, you could be the target of an investigation.
Be sure your property manager supplies you with regular reports on rent collection, vacancies, marketing efforts, expenses, repairs and any new or pending tenant issues. Obviously, you’ll want these issues resolved as quickly as possible, so it’s a good idea to follow up.
Remember, your rental properties will still belong to you, even after you hire a property manager. It’s always a good idea to regularly check up on your PM and check in with your tenants to make absolutely sure everything is running as it should be.
We all know the importance of tenant screening. It provides benefits to you as well as to your other tenants, including:
- Peace of mind
- Quality tenants
- Fewer evictions
While a tenant credit check will tell you whether an applicant meets your qualifications, and a tenant background check will inform you about an applicant’s criminal history, you should do a little more digging before signing that lease.
Every landlord should look at every prospective tenant’s current employment, employment history and rental history. Here are a few tips:
- Call the tenant’s current landlord, as well as at least one previous landlord. More is better. The current landlord might just be anxious to get rid of the tenant, so don’t accept a glowing report as the truth. But, if two or three previous landlords—who have nothing to lose—also say great things, you might have a gem of a tenant! On the contrary, if previous landlords say he was a problem tenant, but the current landlord says he’s great, it’s possible that he cleaned up his act, but can you be sure?
- Ask whether the applicant was current on rent, took care of the property, were courteous to the landlord and fellow tenants, and followed the rules of the lease.
- Check on the applicant’s current employment situation. Make sure you are talking to someone at the company who is authorized to verify employment. Often, applicants will provide the phone number to a friend or co-worker who is coached to give the right answers.
- Check to see if the actually applicant worked at the previous jobs listed on the application. Unless you check it out, you’ll never know if she has decided to stretch the truth or make up a job she never actually held.
When screening tenants, do a little digging of your own to provide a complete picture of each prospect. You’ll make a more informed decision about whom to accept as your new tenants!
In many areas of the country, rental vacancies are very low; some are at all-time lows. But that’s not the case in every market. If you’re a landlord or property manager with no available units for lease and a waiting list, you don’t need to worry about whether or not to negotiate the rent. But for those of you who have vacancies to fill, should you be considering it?
Here are some tips for knowing when it might pay to negotiate the rent:
When you’re in a renter’s market. When local economic conditions are such that vacancies are high and demand is low, that’s a renter’s market. Savvy tenants will read the signs: units staying vacant for months, several open units in the same complex or building, and landlords who seem anxious to get a lease signed.
Your tenants moved out months ago. If you have several empty apartment units, or your rental home has been empty for more than a month, it’s probably time to consider negotiating with prospective tenants. Losing a month’s rent for too long can be difficult to make up.
You don’t have other perks or amenities to offer. When attempting to attract new tenants, landlords often waive certain fees or pay for a tenant’s Internet service for several months. If you can’t offer other perks, then rent may be your only place to negotiate and bring a tenant to the table.
You have a high-quality applicant. When you have a tenant who meets your income requirements, passed your tenant screening with flying colors, has a steady job and gets rave reviews from former landlords, it might pay to negotiate on the rent. And if that applicant is willing to sign a long-term lease—such as two years—you might regret not reducing the rent if it’s a deal breaker.
Your unit is overpriced. If your tenant has done her homework, she’ll know what comparable units are going for in your area. If she can walk away and rent another place for less money, you might find it difficult to get a good tenant in your building without matching—or at least coming close to—comparable units.
And don’t forget that in negotiation, you also get to ask for what you want. For example, in exchange for lowering the rent, you might get your tenant to agree to pay before the first of the month, or to pay the first few months up front. You could ask for an 18- or 24-month lease. Or, you could ask the tenant to accelerate his move-in date.
Ask a landlord in San Francisco or New York City how they feel about running their business in their city, and you might hear a long list of complaints. Rent control, tenants’ unions and plenty of regulations make those markets tough for landlords.
But of course, there are other cities that aren’t exactly ideal for landlords, for other reasons. These are the places where buying property and renting it out for a reasonable return on your investment is more challenging. Luckily, there are plenty of markets where it’s possible to buy a home for less than it costs to rent a typical home—so in theory, landlords can buy low and rent high. Of course, if it’s cheaper for landlords to buy, it’s also cheaper for homeowners to buy!
You’d be best off by analyzing your own financial situation and seeking investment advice from a professional before adding any properties to your portfolio.
Based on information from the real estate evaluation site Trulia, the following cities were rated as the “best” and “worst” places to be a landlord.
Best Places: Where it’s much cheaper to buy vs. renting:
||Buying vs. Renting
|Kansas City, MO
Worst Places: Where it’s much cheaper to rent vs. buying:
||Buying vs. Renting
|San Francisco, CA
|San Jose, CA
|New York, NY
|Orange County, CA
|San Diego, CA
|Los Angeles, CA
|Long Island, NY
|Ventura County, CA
In business, they say you can’t be all things to all people. It’s the same in the landlord business. Just as your neighborhood hair salon, coffee shop and drycleaner have to figure out who their best-fit customers are and market themselves, so should you.
Now, you can’t discriminate whom you will rent to, based on things like gender, family status, race, color or religion (see the complete list here), but you can certainly add amenities, focus your policies and market your property to appeal to a certain type of tenant.
- If you want high-end tenants, make your properties stand out from the others on the market with top-of-the-line appliances, wood floors, beautiful landscaping, patios, a fitness center and other premium amenities.
- If you want to attract executives and other professionals, you might think about going luxury: installing security systems, high-speed wireless Internet, upscale laundry facilities, a swimming pool and fitness center.
- Women make housing decisions in the majority of families, and more single women are in the rental market than ever before. Women also want good security and exterior lighting, as well as safe parking areas, large bathrooms with plenty of vanity space and good lighting, wood floors, bright, open rooms, high-end kitchen counters and nicer appliances.
- If you want to attract stable, long-term tenants, consider having a wide-open pet policy. People with pets, especially large dogs, are often desperate to find rental housing that will accept their furry family members. They will pay a premium, sign long-term leases, and agree to your terms and policies.
Think about the tenants you want to live in your rental property, then give them what they want. And be sure to advertise in places they’re sure to be—which is usually online. Soon, you’ll be filling units—with your targeted tenants—by word of mouth.
Start your tenant relationship off right by knowing who you’re leasing to. Protect your rental property and assets with tenant background checks. Proper tenant screening will ensure you are leasing to the best possible tenants.