Today’s real estate market is flooded with prospective renters. The countless number of renters appeals to the real estate investor attempting to cash in on the investment. These investors purchase homes at a discount and rent them to tenants for a profit. Many investors are first-time landlords who must be aware of the risks associated with residential rentals in order to protect their investment.
Inexperience is nothing to be ashamed about, but a lack of knowledge can mean sticky situations when it comes to the ins and outs of finances and legal matters.
Unfortunately for new landlords, managing a property requires both kinds of knowledge, and while being new to the job might be an explanation, ultimately landlords need to be prepared with an arsenal of knowledge before they find themselves dealing with a nightmare tenant, or renting an unsafe property.
The law in Nevada sets out specific responsibilities for landlords, including how much security deposit you can charge, what disclosures you must make before renting to a new tenant, and what questions you can and can’t include on a rental application. And penalties can be quite strict for landlords who fail to comply with the law—for example by illegally discriminating when choosing tenants.
As a landlord, you have many responsibilities, but the most important is to yourself and your property—which means you need to know how to avoid bad tenants before they sign a lease. Once a tenant has taken up residence in your rental unit, it can be costly and time-consuming to have him or her removed, so you should aim to head off any problems before the first box is moved in.
One of the main components of being a successful real estate investor is finding good, qualified renters for your properties. There are few things more frustrating and cash flow draining than a renter who is always late in paying their bills or worse, a renter who never makes their payments.
It is important to be aware of certain safety precautions you can take to protect yourself and your property just in case your landlord-tenant relationship goes south.
How do bad tenants keep getting away with it?
Talk to any group of landlords and you’re bound to hear horror stories about professional tenants who rip off one landlord after another, leaving behind a trail of trashed rentals and serious financial losses.
It’s harder than it seems to trap a problem tenant. One reason this happens is that problem tenants tend to target small landlords who may be more flexible.
The first order of business for the problem tenant is a roof over his or her head. They may never have intended to become a problem tenant, but when it gets too late, they need to get creative.
Bad tenants often will avoid properties with on-site management or leasing offices, like large, well-managed apartment complexes. They know there will be too much scrutiny, and “standard” procedures. This will most likely mean they will be rejected.
Instead, problem tenants will look for small landlords, investors or neglected properties.
Typically, problem tenants target landlords through:
Require potential tenants to fill out an application and provide sufficient identification. Think of your rental unit as an opportunity for which renters should have proper qualifications. On your rental application, you should require potential tenants to provide:
The rental advert is the first real communication with the applicant. It must be detailed and warn applicants that they will have to undergo a tenant background check, references will be verified, and tenants will have to follow specific rules – like no smoking.
When applicants first call, follow a strict protocol of prequalifying questions. Why are they moving? Are they moving before the end of their lease? How frantic are they to find a place? These answers can reveal difficulties with the current landlord — a problem that is likely to repeat.
Follow through with a face-to-face meeting prior to the property tour. Forcing the applicant to follow these steps will discourage those who are trying to pull one over on the landlord — they can find easier prey.
After some face-to-face confrontation it’s easier to have an idea on their type of character. The first couple of minutes of meeting someone for the first time certainly helps to form some sort of snapshot opinion. This might cloud your judgement against some people who would have made perfectly good tenants, but it more likely you’ll be avoiding bad tenants more often than missing good tenants with this initial assessment.
This might seem like a very logical thing to do, but you would be surprised at how many landlords never ask the prospective tenant for a background check.
These days, background and credit checks are easily and quickly performed, but do be sure that you let potential tenants know that you will be performing these checks; aside from this being the right thing to do, you may also be able to weed out bad tenants simply by making it known that you will be running checks on their criminal backgrounds and credit.
Some notes on credit checks:
Don’t just ask potential tenants for references and then be satisfied that they bothered to fill in some names and contact information. Be sure to follow up with each and every person listed by the tenant, and trust your instincts with the information you’re provided.
Keep in mind that the best references in this situation are not personal friends and/or roommates but previous landlords — even better if it’s not the current landlord, who could be so ready to get rid of that tenant that he or she might not paint a true picture. Past and present employers can also make for reliable references depending on the type of work the potential tenant does and the length of employment.
Make sure your rent is directly competitive. If it’s too low, it signals a lack of confidence. If it’s too high, that will scare away good tenants because they know they can do better. Instead, you will stack the applicant pool with desperate, potentially problem tenants – who don’t care about the high rent because they’re not planning to pay any of it!
Smaller landlords are more likely to show compassion for a tenant in hard circumstances. This is one more reason they become victims of repeat offenders. There is no rule that says a landlord can’t rent to someone with a less-than-perfect background if they choose to. In evaluating such applicants, one measure of the individual’s character is whether they were forthcoming with the negative information, or whether the landlord had to mine the bad info after difficult research.
The rental agreement or lease that you and your tenant sign set out the contractual basis of your relationship with the tenant, and is full of crucial business details, such as how long the tenant can occupy the rental and the amount of the rent. Taken together with federal, state, and local landlord-tenant laws, your lease or rental agreement sets out all the legal rules you and your tenant must follow.
Problems arise when landlords include illegal clauses in the lease, such as a waiver of landlord responsibility to keep premises habitable, or when landlords fail to make legally required disclosures. And even if it’s not required that you cover a particular issue in your lease, such as how and when you can enter rental property, you can avoid all kinds of disputes by using an effective and legal lease and rental agreement that clearly informs tenants of their responsibilities and rights.
Don’t be cheap and buy your rental agreements off the internet at one of these do it yourself websites. Many of these agreements have loopholes that allow the renter too much wiggle rooms. As a saying, “Prepare for the worst, and hope for the best.”
Problem tenants look for long-term vacancies because they believe the landlord will be willing to settle. Avoid telltale signs of prolonged vacancies, like rental ad posting histories, scruffy rent signs, un-kept yards, or ads that tout price reductions.
Don’t overlook the importance of curb appeal in dissuading a problem tenant. If a property is well-kept, tidy and feels secure, applicants understand the landlord has pride of ownership. They will assume the landlord will be watching over it closely — and that spells trouble for a bad tenant.
It is important for the landlord to remain fully insured with respect to the rental property. The landlord is at risk because the landlord does not control the people who are invited onto the property by the tenant. It may be a wise idea for the landlord to consult with their insurance agent to ensure they have the maximum amount of liability coverage. The landlord may also want to explore the benefits of an umbrella insurance policy in addition to their primary insurance policies.
There have been many horror stories of people learning this the hard way. For example, one person had to re-sod the front yard to their house because the tenants never cut the grass, and the yard was overrun with weeds. There is nothing that will hurt the value of a house more than poor curb appeal.
To protect your investment, include the upkeep of the yard, spraying of weeds, trash removal service, etc. in the monthly amount. This way, you can pay to have someone other than the renter provides these services, and you can make sure they are done properly.
It is always a good idea to put in the agreement that the renters must provide their own renter’s insurance. This way, if something unfortunate happens, it does not back up on you. It is also a good idea to have the rental property or properties set up in an LLC; this way, your personal assets are protected should something happen unexpectedly at your rental property. If your accountant tells you an LLC is not advantageous for you, then aim for a million or two-million-dollar umbrella policy for extra protection.
Watch for signs that your rental applicant is helping a friend or family member who is a problem tenant. Those with bad rental history often hide behind another applicant, then move in as a roommate or long-term guest — without having their name on the lease, or undergoing a background check.
Property owners get harassed and assaulted (even murdered), and it can be useful to have some insulation between the business and your personal life. Plus, it can be useful to pretend you are not the boss, that you just work there, such as “Hey, I’d let you slide on that carpet damage, but the head office in Omaha won’t let me!”
You should carry on business through a registered name (does not have to be a corp, just some name like “Spring Time Rentals” that people can write checks to)
By giving them the option to pay online, they don’t need a check. They can just type in the web address for online rental pay, and pay their rent while they are doing the rest of their finances.
When you encourage your tenants to switch to online rental pay they don’t have to worry about losing the bill, being late, and being charged a late fee. All they have to do is try and slow down for 5 minutes to pay rent then continue on with their busy lives.
And also, your tenants don’t have to worry about losing their payment receipts.
Simply get a P.O. box and use that as your mailing address if they would like to send checks. Get a separate cell phone and use that number for the business, since if they have your home phone number they can find out where you live. So, if you have a harassing tenant, you can just cancel that number and get a new one. Also, getting a business email address, so if you have a harassing tenant, you can just cancel that address and get a new one (if adding them to your email’s spam list is not enough).
It’s free and prevents your tenants from constantly calling your personal number with complaints or threats. As an added bonus, Google will transcribe all voicemails for you for easier record keeping.
An angry tenant poses a real threat to damage your property. Key things to think about when getting a landlord insurance policy include buildings insurance, contents insurance, emergency assistance, legal fee coverage, and accidental damage.
Another way to protect your property is by taking detailed photographs of your property before anyone moves in. It’s best to do this with a digital camera, providing easy access to files. A copy should be provided for the tenant, as well as yourself. If you are using a property management company, they will also need to retain a copy of these photos. These photos can be used as a deterrent from making any false claims regarding damage later on. They can be used as evidence should your property show signs of damage after a tenant moves in.
If your renter claims he will sue you, you can verify the legitimacy of this claim by asking to speak with the attorney they claim is representing them. Get the lawyer’s phone number and give them a call. Lawyers have an ethical obligation to follow the law, and cannot encourage a tenant to pursue a course of action that is not justified. Chances are, the attorney will speak to you more respectfully, making it easier to resolve the problem. Ask for information from the attorney in writing.
Being a landlord is really not that hard but just be careful and treat people fairly. Word of mouth is the best marketing, and people want to rent from good landlords.
And remember that you have rights when it comes to protecting yourself from negative behavior from your tenants. Follow the law, don’t get emotional, respond professionally, contact the authorities, have a landlord-tenant lawyer on your side, and move forward with a legal eviction if necessary. Don’t forget to screen your tenants. Every landlord deserves to know what kind of applicant they are dealing with and to take steps to protect their investment – like offering a shorter-term lease to allow an applicant to prove their tenant-worthiness.