First Time Landlords: Key Steps
OK, let's get the disclaimers out of the way.
1) I'm not an attorney, and this should be construed as helpful, but not legal, advice.
2) It's targeted at Landlords in Massachusetts. Laws in other states may differ significantly.
OK. So here we go:
Vacancy Is the Enemy
Market your property slightly below market and get it rented fast. Better to have less than maximum income than no income at all. Raise the rent to market rates when the lease is up.
How do I find GREAT tenants
Every new landlord has very high tenant expectations. I'm only going to take great credit! No smokers! No pets! Not to burst your bubble, but most of those folks don't rent. They own. So let's bring down the expectation level a bit. The key is to find someone who will A) Pay you B) Take good care of your property. Those two are hard enough. Here are some tips.
1) Income is more important than credit. Always look at the credit score, but go deeper. Find out why the credit may have non-payment history. Sometimes, it's a recent divorce, or job loss, but now your tenant is on the mend, and will resume their previous good payment history. A score doesn't define a tenants life - so
Each New Tenant is A Risk:
Work Hard to Minimize It
look deeper, and ask questions. Always call the main office of the employer and ask to speak to the employee. If you get voicemail - or the applicant - odds are, they work there. That's a good start. W-2 (if possible) and bank statements (if necessary) should show regular deposits - paychecks - which he'll need to pay you.
2) Double check everything with the self-employed. It's very hard to validate income of the self-employed. But you must.
3) Be wary of anyone offering to pay you several months in advance. People with regular income streams don't need to do this.
4) Learn what you can about them - and call past landlords where possible. Find out why they are moving, and ask the old landlord if they were tough on the house.
No matter how much you scrutinize, there are no guarantees with tenants. If you can't handle that uncertainty, you should probably not be a landlord for very long.
Don't Discriminate Or Exclude Tenants Unfairly
Truth is, many landlords cherry pick their tenants - and they get away with it. But when they get caught, it's really painful, and expensive. It's not worth the risk. Know the laws in this area, and follow them. If your unit is not compliance with the lead paint laws be prepared to bring it into compliance or sell it if you have a tenant who needs to be in a lead safe unit.
Be Careful of Taking Deposits
Taking deposits before you evaluated a tenant can create confusion - and potential legal issues. Evaluate first, take the checks later. And just because they have a dog, you can't collect a pet deposit over and above a security deposit. That's not legal in MA. One months rent is the limit, and that deposit must be in a separate account that bears interest.
Have A Good Record of the Condition of the Property when they move In
Take a video of the unit - with the tenant if possible (make sure you capture them in the frame). It's hard to dispute video evidence, which is much better than a one page "statement of condition"
Get the Utilities Separated
I'm in so many buildings where the landlord is paying for heat and hot water, and sometimes electricity, because the utilities aren't separated. Not only will this make your units more valuable on resale, it also will allow you to charge higher rent (on a net basis). Tenants don't leave the lights on when they pay the bill. They don't run A/C when they aren't home. And they don't turn the heat up to 80 and then open a window when its their money. There is no downside here.
Check In When You Can - and Often if you Must
Keeping an eye on the tenants is a must, to see that they are taking care of the place. You don't have to wait until the end of the lease to check for damage, and if you find damage (a ripped carpet or painted wall) you can charge them to fix it. Most landlords don't want to cause trouble, but you need to be clear about the rules - and be clear that you'll enforce them. Now, don't be petty: Normal wear and tear isn't damage in most cases. We should be talking about things that are hundreds of dollars - not small items.
How do I get rid of tenants who are a headache?
Some tenants expect hotel like service from their landlord. If you have one of these, charge them hotel like prices for the service. Notify them (in advance of the lease end date) that the new lease will be far more expensive than the old one, to help pay for expenses related to their tenancy. They'll move.
What if the Tenants Stop Paying me?
First, know your rights. Second, know your obligations under the law. There are a lot of statutory (legal) obligations that you MUST follow to keep your options open. Some of them cost money, but are way cheaper than a tenant who isn't paying you for six months. Whatever you do, do it fast. Many landlords beg, plead, ask, accept promises and the like. These rarely solve the problem - they just extend your losses. If you think that the non-payment issue is going to last more than a few weeks, get serious and buy them out - pay them to leave. While this is very painful, if you screen your tenants carefully, you will not have to do this often - but you should always be prepared to do it. Evicting someone is always an option, but it makes people angry, and doesn't solve your cash flow problem. Getting them to leave voluntarily is faster, puts your property less at risk, is less stressful, and often cheaper in the long run.
Have Cash for Emergencies
Things happen, and money fixes them. The faster they get fixed, the less they cost. Don't get caught strapped for cash - that's when you'll need it most.
Be Prepared for Headaches at the Worst Times
It can't be helped: Property management usually means you'll be bothered when you can least afford to be bothered. Property management isn't risk-free, and it certainly isn't effort free, although sometimes it feels like that. Recognize it's part of the job and you'll get better at it. As the years move by, you'll see that your effort has been rewarded with a significant second income stream, and that might just make it all worth it.