subject: What Every Landlord Must Know About Renting [print this page] Real estate rental property investing is a great to earn income during the good times and bad in the real estate business. Rental properties not only earn monthly income, they also appreciate over time, often yielding high returns for investors. Here are a few tips every investor/landlord should know to make the most out of their investment properties.
The Rental Rate Dilemma
When renting out an investment property, look at the big picture. Some investors try to stretch or raise the asking rental price, in an effort to cover more of their monthly mortgage payment and other expenses. The additional amount may actually cause the rental property to remain vacant longer, which ends up costing more over the year.
Over-Improvements
If you have an investment rental property, do not over-improve the property in an effort to make it more appealing to prospective renters. Since they are not purchasing the property, renters are even less enthusiastic about paying a premium for someone else's improvements. In normal times, a fresh coat of paint and clean carpet is usually more than sufficient enough to give your property a fresh feel.
Furniture
Furnished properties tend to demand a higher rent. However, the majority of prospective renters own furniture, and are seeking unfurnished properties to rent. It is recommended that landlords/investors not purchase furniture for their rental property unless they plan on renting on a seasonal basis. Furnishing a rental property adds considerable cost to the investment property, while drastically limiting the number of potential renters.
Security Deposit & Pre-paid Rents
There are laws governing security deposits, pet deposits, and pre-paid rents (i.e., pre-paying the last month's rent). These laws can vary from county to county within a state. The laws specify the proper holding of funds, and notification of a tenant as to the disposition of the security deposit and pre-paid rents. Not following the laws can affect a landlord's ability to make a rightful claim on a security deposit for damages on his/her property.
Walkthroughs
The best way to protect your property is to perform a thorough walk-through, documenting the current condition of your property prior to allowing tenants to move in. Digital pictures or video tape of the rental property can hold great value in the event of a future dispute with your tenants.
Move in Money
Landlords/investors should be familiar with the tenant/landlord laws in their area regarding the collection, notification of holding, holding, notification of claim and subsequent return of pre-paid rents and security deposits. Non adherence may affect a landlord's ability to make a claim for damages on the security deposit.
A landlord usually asks for either first months rent and a security deposit or first months rent, last months rent and a security deposit. The security deposit is usually equal to one months rent. The last months rent would be considered a pre-paid rent and must be accounted for the same as a security deposit in some areas. Note: the acceptable move in amount varies in different areas of the country.
Credit / Rental History
Credit and rental history should be checked prior to renting out your property or investment to anyone. The rental history is the most important of the two. Checking court records for evictions and the credit report for judgments and collections from a landlord or apartment community is highly recommended. Renting to a tenant that is knowledgeable in beating the system can cost thousands of dollars in eviction costs as well as lost rental income for months. A security deposit will not come close to protecting a landlord/investor.
Pets
Many rental properties disallow pets or have a limit on the size of a pet. If you are having difficulty renting out a property then you might want to consider allowing prospective tenants to have a pet. Large dogs are often cleaner and more behaved than small dogs. Allowing a larger dog will make the property even more rentable.
Believe it or not we recommend interviewing the pet prior to accepting a prospective renter. This is common practice with some apartment rental communities. They are checking for breed and behavior. Certain breeds are deemed viscous in some areas and actually banned in some cities. You might not want a prospective renter who's large dog eats small dogs for fun.
A landlord/investor can protect themselves to a degree by collecting an additional pet deposit.
HOAs and Condo Associations
Many Home Owner and Condominium Associations have their own approval process in addition to a landlord's approval. If so, they will usually have their own application and application fee. Approval process times can range from one day to as much as thirty days. The average Association approval time is approximately one week. Associations may require a renter to deliver a refundable common area security deposit to be held by the Association. Many landlord/investors pay the security deposit or reduce their security deposit by same so as to not burden the prospective tenant with two security deposits. The landlord/investor specifies who will be responsible for the common area security deposit.
Its highly recommended that landlords consult with a residential leasing specialist before investing in or renting out a property governed by a Home Owner Association or Condominium Association.
Summary
A good rule of thumb to follow when renting a property is to have a clear agreement (in writing) with your tenants. More often than not, issues arise when the responsibilities of each property are not clear.
