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Starting out as a Landlord
So you want to be a Landlord…
You've read books, attended seminars, talked to your brother in law and now you want to be a landlord. I've been a landlord for 15 years and in this Hub I will share with you the steps I took in becoming a landlord and the initial rental process. I’ll talk about the initial purchase and all the paperwork I use.
It was 1995 when I got the itch and wanted to rent houses for passive income. I read books, attended seminars and talked to friends that had dabbled in real estate investing. I didn’t have the luxury of the internet back then so I did it the old fashioned way. I got out the classified ads and started looking for low priced properties. I then called a real estate office and was fortunate to meet Steven, a young motivated agent that was willing to work with me. I had an area in mind where I wanted to buy in so together we sat at his computer and began looking for properties that met my description. At the time my budget allowed for a two bedroom home no basement. If I was lucky the property also had a garage.
The search was on
I’d pick out about ten to fifteen properties that were in my price range and I would drive by the property on my time. If the house was acceptable on the outside I would make note of it on the print out. If not I would rip the page in half and throw it in the back seat of my car. After that process I would usually have five to seven houses left. I would call Steven with the addresses and he would schedule the appointments. We would then drive to each property and begin the screening process.
I would carry a note pad, pen, and flash light with me to the initial viewing. This was new to me but I had already owned two different houses of my own so I had a general idea of what to look for. I would generally look under sinks and toilets and check for water damage. In cupboards for any insect or other infestation and if the house was vacant I would turn all the faucets on at the same time, including the bath tub and flush the toilet a few times to make sure the water drained smoothly. I would make notes of any defects or issues that I felt were important so If I decided to write an offer I would know how high I was willing to go should the seller counter.
How Many Offers Does it Take before One Sticks?
In my case it took about fifty. I made fifty offers before one stuck. In the beginning of my offering process people were not willing to budge much from their asking price. Then I found one that was a vacant rental property and I think the previous landlord wanted out. I made a low offer, he countered. I was getting tired and wanted a house already so I accepted the counter offer and 30 days later I was a proud owner of a two bedroom fixer upper. I still own this property and to this day has been one of my most profitable investments.
The house needed cleaning, paint, carpet and a handful of minor repairs. I did all the work myself except the carpet. Three weeks later it was ready to rent. I ran an ad in a local classified paper and the calls began rolling in. There is also a company called Rental Pros in my area that lets landlords advertise for free. I now use craigslist, it’s much more effective.
A side Note on Phone Calls
I never answer my phone when I have a house for rent. I WANT any prospect to leave their name and number so if we get disconnected I can call them back. If I can’t understand them I don’t call them back. A number also gives me a general idea where they live now by what area code they are calling from. Not always because of cell phones but true 87% of the time.
Screening and Showing Process
I have a Rental Application that I make all the people interested in the property fill out. I also ask for a $300.00 NON REFUNDABLE deposit if approved and they change their mind. If they are not approved I refund the full amount. This eliminates the “tire kickers”. I also ask them if they are 100% sure they want the property before I take their deposit. I recently had a lady that was interested in the property and had the $300 deposit. When I told her it was NON REFUNDABLE should she change he mind she said “Let me walk around again”. When she came back to the kitchen she had this look on her face like she wasn’t sure. I gave her the deposit back and told her to sleep on it. I told her that if I didn’t hear from her I would know she changed her mind. She told me she would call me either way and let me know. I never heard from her again.
When looking over the application I make sure their income can cover the rent, utilities, auto expenses and food. If that all checks out I call their employer to verify their income. I also call previous landlord if they have one listed.
A side note on showing the property.
When I show a property I turn on all the lights and open all the blinds. I want the tenant to see everything. If there is a flaw I want them to be aware of it before moving in. Leave nothing to chance.
I also call them 1 hour ahead of time to confirm our appointment. If they are not there at the exact time of the appointment I call them again and make sure they are still coming. If there is no answer I leave a message. If they are not there 15 minutes after the scheduled appointment I leave. They are not coming. Don't wait around for them. If they can't make it on time for the first appointment what makes you think they will be on time with the rent?
It's not really that bad...
A Note on Paperwork
I keep all my paperwork on my computer. This makes it easier to fill out all the forms and make sure all the spelling is correct.
When I find a suitable tenant there are several forms I use. First is the Lease Agreement. This form lists in detail the term of the lease. How much the rent is and the due date. The discount if paid on time. What their responsibilities are as a tenant and my role as landlord. At the bottom of the second page I list how many people will be occupying the premises, how many keys received and that a fire extinguisher was provided. We both sign and date two copies.
A side note regarding the Lease Agreement. I only list the main income earner on the lease agreement and everyone else on the addendum. This makes it easier and less expensive if I have to evict them.
On this form I list the names of the occupants. I state that the smoke detectors have been tested and are in working order. (I do a walk through with the tenant and show them that they all work). I state if or if not there is a pet. I state that a “Protect Your Family from Lead in Your Home” brochure has been given to them. (I then hand them one). I also list what bank their indemnification (Security) deposit will be held at.
Amount to Begin Lease
This form lists the property address, the amount of the indemnification deposit, First month’s rent, Total amount due to begin lease. The amount of deposit they gave me and the balance due to begin the lease. I also state method of payment whether it is cash, check, or money order.
Sample Water Due Letter
I pay the water monthly via Electronic Fund Transfer then I mail them a letter telling them the amount due for water and ask them to add it to their next month’s rent. This way I know the water is current and I don’t get a surprise when they move out. I also remind them to change the furnace filter at the bottom of the letter.
In the summer months I delete the furnace filter reminder.
Move in/Move Out Form
This form simply lists all the rooms in the house and whether there is a ceiling fan, certain appliances or window treatments. It lists the condition of the exterior of the house such as lawn or landscaping. It also lists the condition of the walls and flooring in each room. Whether there are defects of if it’s in tip top condition. I use this form when they move in and I review it when they move out. The outcome will determine the amount of indemnification deposit they get back.
The rent is due on the 1st of the month. If they move in on the 15th of the month and the rent is $1000. The $1000 is due upon signing , in addition to the indemnification deposit which is usually a month and a half rent. On the 1st of the following month they pay me for 15 days. On the 3rd month and every month thereafter, they pay $1000 on the 1st of the month. I have 7 rental properties and I don’t want to be going to the post office every other day. I also use a PO Box to collect rent checks and any bills related to my rental business.
Local Phone Numbers
I also give them a list of local phone numbers which includes the following:
- Electric company
- Gas company
- Cable company
I tell them to transfer the utilities in their names as within three days and ask them to call me and leave me a message after it has been done. I then call the utility company to verify that they have transferred to their name. If I don’t hear from them within three days I call the utility company myself to see if perhaps they transferred and forgot to call me.
If they have not transferred I tell the utility company to turn off the power. Then I call the tenant to remind them to transfer and by the way, the power will be out of my name by the end of the day.
When all the the paperwork is signed, keys are exchanged for money and everyone is happy I briefly explain renters insurance to them. I explain that I have landlord insurance which covers the structure should anything happen such as a fire or a tree fall on it. However, my insurance does NOT cover any of their possessions and it is up to them if they want to get renters insurance.
Renters insurance is much less expensive than landlord insurance and I recommend they look into it. The rest is up to them.
Real Estate related links
- Renters Insurance and What it Covers
Renters Insurance and the cost for piece of mind. Is it worth it? Something to consider if you are a renter.
- The Good, Bad, and the Ugly Truth about being a Landlord
The Good, Bad, and the Ugly Truth about being a Landlord In this Hub I will talk about my Good, Bad, and Ugly experiences as a Landlord and how to deal with situations that arise. Whether you're currently a landlord or thinking about becoming one, th
- Which Rental Property Expenses Are Really Considered Operating Expenses?
What rental property operating expenses are so you know which expenses you should include as an operating expense in your real estate analysis and which you should not.
I hope this Hub has been informative as well as entertaining. Any comments and suggestions are greatly appreciated.
Thanks for reading!