Avoid The Rental Nightmares
Owning rental property can be a great source of secondary income but it can also be an extreme headache if not approached correctly. Many people jump right into the investing game with little background or education on how the game actually works, and often find themselves up the creek without a paddle. There are tips and tricks that you can implement to help minimize your headaches and maximize your return on investment. Although it is impossible to plan for all circumstances, you can absolutely minimize your risks by following a few of these tips to help avoid the rental nightmares.
Solid Application Process
Having a strict application process can immediately weed out potential tenants that you would not want to rent to. You can learn a lot about a potential tenant from the information they provide. You can access information about their references, employment history, whether or not they are smokers, have they ever been convicted of a crime, etc. Charge an application fee to cover the costs of running a credit and criminal background check. If an applicant can't afford to pay the $20 application fee, how can you expect them to pay the $900 a month rent payment? Running a credit report and criminal background check is a must. Accessing this type of information allows you to get a good idea of the individuals debt vs. income ratio, how timely they have been on past payments, etc.
Collecting a security deposit is an abosolute must. Do not rent to someone without collecting a deposit. Period. You need to be aware of and follow any state laws and regulations regarding the amount you can legally collect for a deposit. Most commonly a deposit can be equal to one month's rent. No matter what the law might be, you must collect a deposit of some sort. Deposits will save you future headaches and help you avoid paying out of pocket for damage your tenants are responsible for.
Have everything in writing, always have some sort of documentation, and keep copies on file. I don't care if you are renting to your cousin, brother, sister, or mother, have a lease of some sort! It is often a good idea to have your lawyer or attorney review or even write your lease so that you have some assurance of its strength and legality.
Responding to your tenants' complaints and issues appropriately is very important. If you are timely in completing repairs your tenants will be appreciative and hopefully be more apt to pay rent on time. Promptly dealing with repairs is the best way to build a solid relationship with your tenants.
As touched on in past blog posts, it is important to establish a professional relationship with all of your tenants. Showing your tenants that you genuinely care about their living conditions makes for a much better tenancy - you may even be able to turn bad tenants in to good tenants! That being said, it is always important to make the distinction between being friendly and being friends; you must create a policy and stick to it.
Education is the key to success, and knowing the ins and outs of how rental property and investments work will make you a better off landlord. You should constantly be updating your knowledge on local laws and regulations, including tenant and landlord rights, fire and saftey code, and many others.
If you are using a property managagement company, be sure to do your homework. Check references, intereview the individuals and get a good feel for the people who will be working for you. Always keep tabs on your monthly statements and make sure the work being done is professional.
These are just a few tips of the trade that will help you as a landlord become more successful as you build your investment portfolio.