Managing Your Rental Property

When you own a rental property, it is important to treat it like a small business and manage it properly. You can manage the property yourself or hire a professional property manager or property management company to manage it for you.

Using a Property Management Company to Manage Your Rental Property

If your rental property is more than an hour away from your residence, you should consider hiring a property management company to manage the property for you. You should also consider using a property management company if you are too busy to properly manage your property or if you do not want to bother with tenants and the complexities of property management.

Step-By-Step Plan to Manage Your Rental Property

If your rental property is less than an hour away from your residence, you may consider managing the property yourself.

Renting and managing a rental property can be challenging and frustrating, if you do not know what are doing. Below is a proven strategy to successfully rent and manage your rental property.

1. Determine Target Rent

Determine for how much you want to rent your property.

Research online at sites such as Craigslist.org by searching for similar homes in your area and seeing how much they are advertised for rent.

If you see FOR RENT signs in your neighborhood, call the phone number and find out how much they are asking.

2. Advertise Your Property

Place a free advertisement on craigslist.com with a description, features, and plenty of photos of your property.

Buy a large red and white FOR RENT sign at Home Depot and place it on your property in a prominent location.

3. Prepare Your Property

Prepare your property so it shows well to prospective renters. Ideally, the home should be clean and in move-in condition. The better your home looks the easier it will be to rent and the higher the rent amount that you can charge.

4. Handling Calls from Prospective Tenants

When you receive calls from prospective renters, ask them relevant questions, such as:

• How soon do you need a home to rent?
• How long of a lease period are you seeking?
• Where do you work? How long have you worked there?
• Do you have excellent, good, or poor credit rating?
• For how long did you rent your current or last home?

If you think they may be a good tenant, schedule an appointment for them to view your property.

5. Screening Prospective Tenants

Have prospective renters complete the attached Rental Application as completely as possible.

Ask them to provide a copy(ies) of their credit report. If they don't have their credit report, tell them to go to AnnualCreditReport.com and print a free credit report from each of the 3 major credit reporting companies in the U.S. Otherwise, with their permission, collect a credit check fee, get their social security number, and have a real estate agent or loan officer run their credit.

Ask the prospective tenant if they have ever been evicted (unlawful detainer) from a property. If you determine that they were previously evicted, refuse to rent to them.

Call the prospective renter's current employer and verify their employment.

Call their current and previous property owner or manager and ask:

• Did they pay their rent on time? Were they ever late on paying their rent?
• Would you characterize the tenant as excellent, good, or poor? Were they clean or messy? Were they responsible?
• Would you rent to them again?
• You can also elect to perform a criminal background check or an unlawful detainer check on the prospective tenant.

6. Selecting the Best Renter

Select the best renter based on the information from their rental application, your face-to-face meeting, their credit score, and the information obtained by speaking with their employer and current or former landlord or property manager.

The prospective renter's credit score is a key indicator whether they will be a good renter. Select a tenant with a credit score of 700 or higher --the higher the better. Typically, the higher the credit score, the better the renter. (If a prospective tenant provides their entire credit report without a credit score, review the entire credit report to see if they have made their credit payments consistently, on time, and in full.)

It is better to take a longer time to find a highly-qualified tenant with a high credit score, than to be in a rush and rent to an under-qualified tenant because you're worried about losing money while the property is vacant. The highly-qualified tenant will make managing the property easy and cost you less money in the long run. The under-qualified tenant may turn to be a nightmare who damages your house and doesn't pay their rent and whom you will have to evict, thereby incurring headaches, a significant loss of rent, and lawyer fees. This is an important lesson learned from personal experience, so heed this advice.

TIP If a prospective tenant has substantial income but poor credit, you may still consider leasing him your property, but request that he pay the entire lease amount or other large sum at the time that he signs the lease agreement and before he moves into the property.

Tenant Screening Solutions

TransUnion, one of America’s major credit reporting companies, has a service called SmartMove that provides online rental screening solutions for landlords, including:

• Full credit report
• National criminal report
• Customized leasing recommendation

7. Lease Agreement, Security Deposit, First Month's Rent, Move-In Inspection

Complete the attached Residential Lease Agreement.

Insert a clause in the agreement that states: “Owner shall pick up the rent at the subject property at the beginning of each month and conduct a walkthrough the home to ensure that everything is in good condition and in good working order.”

Meet with the tenant and have them review and sign the lease agreement.

Recommend to the tenant that they obtain renter's insurance for their personal property, because your property insurance may not cover potential damage to their personal property.

The deposit should not be the same as the monthly rent amount, because some tenants then try to use it as last month's rent. The security deposit is to cover expenses that the landlord incurs when the tenant vacates the property, and many times those expenses are larger than the monthly rent amount. Therefore, the security deposit should be larger than the monthly rent.

Upon signing the lease, the tenant should pay the first full month’s rent plus the security deposit. The first payment should be made with certified funds: cash, cashier’s check, or money order, not a personal check. If there is any pro-rationing involved, the second month will be pro-rated between the tenant and the landlord. Why? So the tenant demonstrates a greater financial commitment to leasing the property.

Complete and sign the attached Move In, Move Out Inspection Form with the tenant.

Sample Clauses You May Want to Include in Your Lease Agreements

• Tenant shall give landlord a 60-day advance notice before vacating the property.
• Tenant shall cooperate with landlord to make the property available for the landlord to show the property to prospective tenants. Landlord shall give tenant a 4-hour notice for showing the property to prospective tenants.
• Landlord shall pick up the rent at the property on the first day of each month and conduct a visual inspection to ensure that everything within the home is in proper working condition.
• If there is any issue within the property that requires the services of a repairman to repair it, the tenant shall pay the first $60 for each incident.
• Tenant shall maintain the landscaping in good condition.

8. Property Management

You can manage the property yourself or hire a professional property manager or property management company. If you live near your rental property, I recommend managing it yourself. The performance that some property management companies deliver is unsatisfactory, and finding a good property manager isn't easy.

You can arrange for the tenant to mail you the rent each month, or, even better, you can pick it up at the rental property from the tenant at the beginning of each month so you can check up on your property to make sure the tenant is properly maintaining the property.

If the tenant fails to pay the rent on time, deliver the Three-Day Notice to Pay Rent form to them to notify them to pay the rent.

You may want to get a home warranty for your home to cover unforeseen problems. Home warranty companies offer basic coverage or comprehensive coverage policies with options for air conditioner, etc. They typically charge a $55 service fee per incident. If an issue arises that is covered by the home warranty policy, you simply call an 800 number, report the problem, and they schedule an appropriate local service company to fix the problem. Here are 3 well-known home warranty companies:

• First American Home Buyers Protection Corporation
  1-800-444-9030
  Website
• Fidelity National Home Warranty
  1-800-862-6837
  Website
• Old Republic Home Protection
  1-800-445-6999
  Website

Keep all of the signed tenant forms within a folder for future reference.

I recommend that you personally pick up the rent at the rental property at the beginning of each month and conduct a quick walkthrough the home to ensure that everything is in good condition and in good working order.

9. Lease Expiration, Move-Out Inspection, and Refunding Security Deposit

When a tenant's lease expires and the tenant vacates the property, meet with the tenant and go through the Move In, Move Out Inspection Form that you used when the tenant moved in.

If the condition of the property when the tenant moves out is very similar to when they moved in, refund their entire security deposit to them within 21 days. If the condition of the property when the tenant moves out is inferior to when they moved in, itemize the costs incurred to restore the home to its prior, move-in condition and subtract those costs from the amount of the security deposit. Mail your calculations along with the remainder of the security deposit to the former tenant within 21 days.

Please call or e-mail me if you have any questions. I am committed to helping you achieve your real estate goals.