So you’ve pulled the trigger and finally bought yourself a rental property so you can generate some income. Hopefully you’ve done your due diligence to ensure that you got a good deal and that the move makes financial sense for your situation.
Buying a suitable property is only the very first step to successfully owning and renting out your property.
Now, it’s not rocket science. But there are a number of steps you should go through so you can attract and retain the best tenants possible. Most landlords fail to realize how detrimental a problem tenant can be. In some cases, it can be better to wait a little longer and run a tenant verification rather than settling for a "problem tenant". Eviction is a very costly process. That’s why it’s always best to get things right the first time. This guide can help you get there.
Readying Your Property
Unless you got extremely lucky or paid a premium for your property, it likely needs a little work before its "rental ready". This is a similar concept that applies when you are trying to flip a property. Small improvements and attention to detail can pay off a lot in the long run:
Nice looking properties attract nice tenants. This sounds simple enough. But I’ve seen countless landlords who try to take shortcuts with property improvements and they always wonder why they’re unable to attract quality tenants. A good rule of thumb is to always put yourself in the shoes of the tenants and ask yourself "would I be happy living here"? The answer should always be yes.
The nicer the property, the higher monthly rent it will command. If done right, the investment you make to improve the property can be recouped within the first year or two. For instance, if you spend $5,000 in renovations and this brings you $500 more per month in rent, you will have profited $1,000 over 12 months. Over time, maintaining quality properties can allow you to make much more money than if you let your properties fall to the wayside.
Although a little improvement can go a long way, you must resist the temptation to over-renovate. Keep in mind that the tenant will likely not treat the property as well as they would treat their own property.
The main goal should be to get the property to a point where the tenant can easily envision living there. This means maintaining a clean space with an open and bright feel. Be sure to clean the property so it doesn’t have a messy look, and always show the property with abundant lighting. This could be from light fixtures or natural lighting.
There are a few key points that you can focus on in your renovations to give you the most bang for your buck:
1.Bathroom and kitchen are king. Having spotless bathrooms and a modern kitchen can give your property the boost it needs to attract winning tenants. People don’t want to bath in a filthy bathroom, nor do they want to cook with dated appliances surrounded by lime-green linoleum flooring.
2.Don’t underestimate curb appeal. You never get a second chance at a first impression. The first impression of your property is made by its outside appearance. This can really set the tone for the entire viewing. When a prospective tenant walks up and is impressed by the property exterior, they are much more likely to see the interior in a favorable light even despite its flaws. This translates to more applications for the property. The quickest and easiest way to spruce up the exterior appearance is a little landscaping. Keep the lawn watered with clean edges. Any nicely kept flower beds and shrubs are a bonus.
3.Small changes pack a big punch. Small things like replacing fixtures throughout the house or repainting a room can speak volumes to a potential tenant.
- Replacing the worn and loose doorknobs throughout the house is inexpensive and easy. But this small fix will convey to the tenant that it’s a quality property each time they open a door. The same holds true for bathroom and kitchen faucets. And as an added bonus, you will avoid having to do repairs after the move for broken or leaky fixtures.
- You can also never underestimate the power of putting up a fresh coat of paint in a room. It will make the room seem brand new. Use this handy guide to help choose the right colors specifically for rental properties.
How to Get (the right) Tenants Calling You
The next step after your property is ready is to find the actual tenants to move in. This may seem like a simple enough task. But in reality, it all comes down to marketing. And before you can start marketing your rental property, you really should understand the various types of renters out there and how to best reach them. Understanding all of the marketing channels at your disposal can help you quickly and efficiently land the ideal tenant.
Now, not all tenants fall neatly into these categories. In reality, most can fall into a combination of one or more categories. The idea is to understand that each tenant you have will be in a different stage of life that will give them unique characteristics. Based on the type of property you have and your needs as a landlord, certain tenant types may be better for you than others.
Please be aware that this information is meant to simply help you narrow your marketing strategy. As a landlord, you should always avoid discriminatory practices and adhere closely to the Fair Housing Act when you make decisions on who to rent to.
- Students. Students may be a great option for you if you find yourself in the vicinity of a college campus. Depending on how many bedrooms your property has, you can rent the property out to one or more students.
- The good news is that the seasonal nature of class will give you a highly predictable idea of when students will look to move in and move out. Generally speaking, students will start slowly moving in June and peak volume will occur in July and August depending on the school. On the other hand, students will start to move out in May and this will peak in June as soon as classes end. Understanding the local schools’ academic calendar will help give you a heads up on how the turnover will work for the first few years.
- The bad news is that you can potentially have slower or dead months during off-peak times of the year. To counteract these periods, you can either try for different types of long-term tenants listed below. In a pinch however, you can potentially try to get some short-term exchange students to fill in the gaps between semesters and years. The other plus is that you can likely charge a premium for these types of short-term leases.
- Professionals. Working professionals normally have steady incomes and set jobs, meaning they will likely be longer-term tenants. Keep this in mind if you anticipate the need for your property sometime in the next few years. Some tenants can stay for up to 5 years and beyond. They will tend to live closer their place of work to have an easy commute. These individuals value clean and modern spaces.
- Families. Families can make great tenants. The increasing number that rent due to the housing market make them a perfect target to aim for.
- They typically look for something a little more spacious as they may have 4 or more family members to house. Also, be prepared in case they have a family pet they want to bring along.
- Families are perfect to target especially if your property is in a good school district. Families seek out these areas for their children and are willing to pay a premium more so than a single person will be.
- Be wary however because the more people living in your property, the more wear and tear you will see.
- Overall, families can be reliable long-term tenants as they are often rooted in the area until the kids grow up and move out.
- Seniors. Elderly individuals are a good options for some landlords. The excitement of youth is behind them so they are typically drama-free renters. Many have stable incomes from pensions or social security, which makes them very reliable tenants. However, they present their own challenges. For instance, you will have to be extra careful to avoid discriminating against seniors on the basis of age or disability. This can become especially tricky with evictions as elder tenants enjoy extra layers of protection.
- Housing Benefit Recipients. Commonly known as Section 8, the United States Housing Choice Voucher Program (HCVP) is available to assist tenants who have low income, are elderly, or have a disability.
- The way the program works is the Public Housing Agency will pay you a subsidy directly, and the tenants will pay the difference between the actual rent and the subsidized amount. In order to become eligible to accept these tenants, you must first inform the local Housing Authority that your property is available and then indicate on your ads that accept the vouchers.
- Your first instinct may be to stay away from these tenants. But in reality these renters can be a safer bet than many "regular" tenants because a portion of the rent is already guaranteed from the government.
- This may be a good option for you if you are looking to increase your renter market to include renters that most landlords do not typically take advantage of.
Now that you have some idea of the different types of tenants out there, you can begin to think about your marketing strategy to reach them.
Creating the Listing
Gathering the listing content and creating the listing itself is one of the most important parts of attracting tenants. This is what all the prospective applicants will see and what they will use to decide whether or not to submit an application for your property. Although many landlords prefer to receive as many applications as possible, keep in mind that all you need is one perfect tenant. In other words, you should be going for quality over quantity when it comes to the applicants you want to attract.
This section will go over ways to not only get a large number of applications, but also to increase the likelihood of receiving quality applications.
- Creating high-quality visual media. Since the vast majority of applicants will likely find your property online, it’s not a good idea so much as it’s a requirement to exhibit your property via rich, high quality visual mediums. As I’m confident you’ve heard before, *pretty* pictures and videos will make a difference in the amount of interest you get for your property. But how can you do this?
Anyone who tells you that you need a fancy DSLR or digital camera to get good photos and videos of your property is wrong. Almost any smartphone made in the last two years can get you spectacular results. Smart phones are quick, convenient, and easy to use. Most have extremely high quality cameras. As an added bonus, you can easily post the photos you take to your social media accounts you’ve been so diligently building (keep reading below to find out more about social media). How can you get great pictures and videos with your smartphone?
- Carry a monopod. You need to keep your phone steady when taking photos indoors where the light may be low. Tripods can be bulky and cumbersome. This monopod from amazon costs only $12.62 and will keep your phone steady for photos. You also need this for your videos. No one wants to watch shaky videos. With a monopod your videos will be smooth and stable.
- Get a lens. Think you can’t get those nice wide angle shots of your property without a DSLR with a fancy lens? Think again! You can get a simple set of lenses for your smartphone to allows you to get flattering shots of both interior and exterior spaces of your property. These lenses cost less than $12 and can fit any smartphone. They make a world of difference.
- Use good lighting. Make sure the subject of your photos is always well-illuminated. This means limiting exterior photo shoots to daytime hours. Also, avoid taking photos when the sun is directly about the house. The ideal lighting comes during morning and evening times when the sunlight casts on the house from an angle. For interior shots, make sure you have as much natural lighting as possible. If you can’t get adequate natural lighting, be sure to turn on any interior lights that you can.
- Do some minimal editing and try shooting in HDR. After you take the photos, you should always do some minimal editing of the photos using a free editing mobile application. There are plenty out there that are easy to use. You can adjust things like contrast, saturation, and color balance quit easily to put the finishing touches on your photos. Finally, many phones have the option to take photos in "HDR" mode. This stands for High Dynamic Range and can really make your photos pop. Experiment with this option to see what results you can get.
- Go above and beyond with listing details. Make sure you provide all the details you can to allow renters make an easy decision. This starts with giving them the basics. Square footage, bedrooms, bathrooms, type of property, etc. But the more additional information you give them, the easier they can decide that your property is the right one for them. That means don’t neglect to give them extra details like your pet policy, whether a washer and dryer is included, type of flooring, parking availability, community amenities available, the property size, fireplace, and anything else you can think of.
The point is, spend time when you write the property description. Give them all the details, especially highlighting the positive ones. This decreases questions they have and increases the likelihood that something will catch their eye. This can convert a "maybe" renter into a "definite" renter.
- The price must be right. All other things aside, the price is one of the most important factors that determines whether your property will be rented or not. It can be difficult to price your property accurately without having access to data of previously rented properties. You can start by pricing at a number that will give you a certain percentage profit over your mortgage payments. But keep in mind that if you price too much higher above other comparable properties, all you are doing is helping to get other peoples’ properties rented. A better strategy is to price more consistently and realistically compared to other properties on the market.
Holding out for a high rent price can also lose you a lot of money! For instance, if you price your property for $5,000/month and it take you two months to get it rented, you just lost $10,000 in those two months. Alternatively, you could have priced at $4,500 and got the property rented immediately. In this case, you are only sacrificing $6,000 over the course of a year. So you would gain $4,000 by pricing appropriately to begin with.
Pricing too low is also not a good idea. By doing this, you are subjecting your property to potentially undesirable tenants who will not take care of your house. This can end up causing you hassle when they move out to fix the wear and tear.
All in all, proper pricing is a complex issue that’s addressed in a separate article.
Where Should I Post the Property?
So you’ve got your property ready for renters, chosen what type of tenant you want to target, and created the perfect listing at the right price. So how can you get some eyeballs checking out your property? This part of the rental process is essentially marketing.
As with all marketing efforts, its best to use a "multi-channel" marketing approach. This means trying a bunch of different marketing techniques to increase the likelihood that the right person sees your property at the right time. This is trickier than it sounds, but it’s extremely important for all landlords who should be worried about decreasing property vacancy rate or "downtime". Every day your property sits idle is more money falling through your grasp. Having a comprehensive and detailed multi-channel marketing plan will get your property rented faster and help you maximize your return on investment.
This section is broken down into two sections: offline and online. Although online is undeniably more important, you still cannot avoid offline methods. You will reach less people offline, but messages tend to be stronger when they’re heard via WOM (word of mouth).
- Offline Strategy
- Use Signage. Don’t underestimate the power of a big "for rent" sign in the front of the property. Especially in competitive markets, a surprising amount of renters still will call based on seeing a sign in front of a desirable property.
- Start with your personal network. Your friends and family are always the people you can reach most effectively. This is the best starting point. Be sure to ask if they or anyone they know is looking to rent a property. If you don’t feel comfortable "selling" to some people, don’t overlook the benefits of talking enthusiastically about your property. As a property owner and landlord, you should take pride in your property. When people sense that, they are much more likely to remember and recommend your property to their own network.
- Enlist help. Put your current tenants to work for you. Offer a referral fee for any tenants that brings you an applicant who signs a lease. It doesn’t have to be a lot. Two hundred and fifty dollars is sufficient to motivate anyone who is willing to help you. You can offer this in the form of straight cash or in rent deduction. Either way, this is a small price to pay to get your property rented faster. Think about if paying $250 would get your property rented one month faster. That would save you thousands of dollars.
- Online Strategy
- Stay away from craigslist. You can read more details here about the reasons your property shouldn’t find its way onto Craigslist. The platform can increase the likelihood that you run into scammers, you’ll be lumping your listing together with mostly low-quality listings, and the lack of technology can make it difficult for renters to find your property and get into contact with you.
- Have your own website. The best way to market your rental properties starts with your own website. If you already have a website, you are likely getting some traffic of renters looking for properties. What if you don’t have a website yet? It’s never too late to create one! These days, it’s easier than ever to build a beautiful website with minimal investment of time or resources. Once you get it going and start adding content, you will start to see traffic increasing within a few months. Platforms like WordPress make it easy to build, and there are add-ons available for almost any feature you would want to incorporate.
- Social media. Secondary to your one website is your social media presence. Again, if you don’t currently have one, now is the perfect time to start! All it takes is a few hours each week to build up a strong following. Building a network this way can give you a quick and easy channel to spread the word on any new vacancies that arise. This means renting it faster and making more money. Here are some of the channels you should focus on in order of importance:
- Facebook is the largest and most widely used social media platform. If you already have a Facebook page for yourself, your network will give you an initial boost. Either way, you need to create a business page where you can promote your business dealings and vacancies. You should aim to post updates at least once per day relating to the market you are trying to target.
- Twitter is also an important want to reach your market. You should post to your Twitter account a little more frequently than to your Facebook page. Aim for 2-3 posts per day. Each Tweet should be short and sweet and include either a photo or video. Avoid appearing too "salesy" for your account. Instead, focus on creating content that will keep followers interested.
- Instagram is the last social media channel you should really focus on. Instagram is perfect for real estate because it relies completely on visuals. Be sure to post at least one photo per day whether you are trying to rent your property or not. If you can build up a following during down-times, you can guarantee a lot of eyeballs of your properties when you actually need to get them rented!
Social media, like most marketing channels, is a long term investment. You will not see results within the first or even second month that you start posting to your accounts. But if you can stay with it, your effort will pay back tenfold. Just as you can’t buy a social media presence, you can’t put a price on it either. Being able to reach your market when you need to is extremely valuable.
Facebook, Twitter, and Instagram aren’t the end-all-be-alls of social media. If you’re feeling ambitious, start looking into building your Pinterest account and your YouTube channel. YouTube in particular takes a little more effort than the others. But it has the second most number of users behind Facebook and you can see extreme benefits if you are able to consistently create videos that people like to watch.
- Listing syndication. Aside from your personal connections and social media following, how can you get your listing out in front of the general public? Listing syndication websites can be overwhelming to think about. Not only do you want to reach the widest audience possible, but also you want to reach the right audience. With so many options out there, which are the right ones you need to post your property to get it rented quickly to the best tenants?
- Zillow (Formerly Postlets). Posting to Zillow is the easiest way to get your listing in front of as many eyes as possible. When you post your rental here, it will also appear on Trulia, HotPads, Yahoo! Homes, and many more. From here, willing renters can contact you to view the property and gather more information.
- RentPath. Posting your property here is similar to posting to Zillow, except you are covering other sources that Zillow misses. For instance, RentPath posts to Apartment Guide, rent.com, Rentals.com, and lovely, all of which are great platforms where you can get more quality leads.
- RentSpree.com. RentSpree.com is a relatively newer listing option that you shouldn’t ignore. Aside from having a wide reach to potential renters, RentSpree also offers the ability to automate the application and screening process for you. This can be especially beneficial to those who are too busy to want to collect applicant information. In addition, the site provides a Transunion credit report and background check with each application so you can "pre-screen" your tenants. This way, you’re not wasting time showing the property to those who don’t qualify.
The Screening Process
If you do things right, you should start generating some interest for your properties. The crucial thing for you to remember is that you MUST properly vet each applicant before you decide who to lease to. You should be especially sure to screen renters who you know personally or where referred to you by a friend. Don’t forget that every applicant can have skeletons in their closet. "Problems tenants" are just that"¦a problem! You should avoid problems as much as possible.
- Collecting applications. For each renter interested in your property, you’ll have to first collect their application information and an application fee. The fee you collect is based on the cost you incur to process the application and commonly ranges between $35 and $45. There are a number of forms you can use. Your local apartment association can offer a number of resources for you provided you’re a member. Realtors and agents have access to the standard California Association of Realtors application form. There are also online options from websites such as RentSpree.com, which automatically accesses credit, background, and eviction info from Transunion.
- Gather references and CONTACT THEM. With the other application information, it is crucial that you collect references and reach out to them. The references you should request mainly include current and prior employers, and current and prior landlords. Any additional references are beneficial, but your goal is to assess the applicant’s ability and willingness to pay rent on time.
When you call these individuals to ask about the applicant, you should find out a few key pieces on information. First, you should confirm that the application info is accurate. For instance, does the applicant really work and live where they say they do? Second, you should get a sense of whether or not the applicant is considered "reliable". This can easily be determined from speaking with a supervisor or current landlord. It will tell you whether or not the applicant will pay rent on time.
- Verify income. Along with the other application information, you should also request the past two paystubs, copies of bank statements (particularly if they are relying on savings), last year’s tax return, or a combination of these documents. This is important because applicants can claim any income they want. The question is whether or not they have support to prove how much they make. On a side note, an applicant’s monthly income should typically be about 3 or 4 times the monthly rent. For example, someone who earns $6,000 per month should not rent an apartment that costs much more than $2,000 per month.
- Verify social media platforms. Another underrated and effective screening tool is to take a look at an applicant’s social media accounts. In particular, check out their Linkedin account to make sure their employment details check out. Facebook is also useful to verify that people actually reside where they say they do.
- Running credit, background, and eviction checks. You should have also gather the applicant’s social security number on the application they filled out. You will use this to access the applicant’s credit report, background check, and eviction report. There are numerous ways to access this information. But the easiest that I’ve encountered is via Tranunion’s SmartMove product. You create a landlord account and can use the platform to access a full credit report, background check, and eviction report.
As you receive these reports, there are a few key things to look for. First, check the credit report to see the credit score. Scores below 700 usually begin to raise some questions. In these cases, you want to take a deeper dive into the details of the report provided. The report will tell you the specific reasons for any score deductions. For instance, the applicant may have late payments for a credit card or they may spend up to a high percentage of their credit limit. Some marks are worse than others. You can use your discretion. Keep in mind that some minor issues can be overlooked with applicants who have high incomes and favorable references.
The background check is straightforward. It will show any criminal history in the applicant’s past. You will have to decide for yourself who to accept based on your comfort level. Finally, the eviction report is a key piece of information you will need. Someone who has evictions in their past is a major red flag. Though the past isn’t always an indication of future performance, you want to really be careful with applicants who have previous evictions. Some individuals take advantage of landlords by living for free during the eviction process which can take months.
- Avoiding unlawful discrimination. You should avoid discrimination at all costs. First, you must educate yourself on the acceptable and unacceptable reasons to deny an applicant. These can be found here. In particular, never discriminate based on age, disability, race, or religion. It can help to clearly state the criteria you use to evaluate applicants. As a few examples, you can specify credit score, income to rent ratio, previous evictions, current employment status, or move-in date.
- The benefits of meeting in person. Despite all the due diligence you will do to vet applicants, it’s always best to also meet the applicant in person at some point before you give the final go-ahead. Meeting tenants early in the process has its advantages because you can gauge how serious the applicant is. But the downside is that you can end up wasting time with many tenants who you later find out do not qualify based on your criteria. I recommend screening first if possible and arranging a meeting later on as a final check.
Crafting the Lease
The lease agreement is one of the biggest causes for litigation issues between renters and landlords. It’s a very important document and I recommend speaking with an experienced attorney to assist you with the details of the agreement. Here I only provide a few factors you should consider to make sure things go smoothly.
- Lease Duration. Think carefully about how long you want your lease to last. Longer leases are best if you know you won’t have need for the property and if you can get tenants to agree to longer term. The longest leases typically last for 12 month, but can be up to 24 months in some cases. At the end of the lease, tenants can resign for another 12 months or continue month to month. Long-term tenants help to ensure that you will have a steady income and less vacancies. The disadvantage is that you are locked in for a longer period and have less flexibility if an issue arises. If you think you may have need for the property or are worried about how the tenants will be, you should consider a month to month structure. In this case, either you or the tenant can opt out and move on by giving 30 day notice to the other party.
- Security deposit amount. The security deposit is never a set amount. You should adjust the security deposit amount based on how comfortable you feel renting to the tenant. A higher deposit means the tenant feels more "risky" to rent to. However, there are some important guidelines you should follow in regards to the security deposit.
- The maximum security deposit is 2 month’s rent for unfurnished units. For furnished units, the maximum is 3 months.
- It’s a good idea to charge more than 1 month for the deposit. When you only keep one month as a security deposit, renters tend to assume that security deposit is there to cover the last month’s rent. However, this is NOT the case. The renters should pay the last month as usual and then wait to get the deposit back if the condition of the unit is okay. Normally, I charge about 1.25x for the security deposit for renters I feel comfortable with.
- Do a walkthrough with the renter both before you take the security deposit and before you return it at the end of the lease. This way, you’re both on the same page and can be clear about the condition of the apartment. If there is damage to the unit, both you and the renter can observe it at the same time and you can explain exactly what this means for the security deposit.
- Renter’s insurance. It’s typically a good idea for you to require renter’s insurance for all residents. If some damage occurs to a renter’s property while they are staying at your property, their insurance will cover the damages and they won’t look to blame you for damages that weren’t your fault.
Although this article is fairly comprehensive, it is by no means a substitution for legal or professional counsel. It is merely a guideline to follow for after you’ve acquired property and are looking to rent it out. To summarize, you first need to get your property "renter-ready". Fix it up to address all issues. This will help you to avoid liabilities down the road, to command a higher rent, and to find tenants faster.
Next, you need to choose your target market and then pick the ways to best reach them. This involves proper pricing and a multi-channel marketing strategy. Remember, marketing isn’t about reaching as many people as possible. Rather, it’s about reach as many of the right people that you can.
Once you start getting interest from the right people, you need to make sure they’re actually the right people. This is why applicant screening is so crucial. Collect all the information that you need and don’t take any shortcuts in validating all applicant information. Once you feel comfortable with the applicant, you can start thinking about some of the important lease terms like lease duration and security deposit.
You can’t carry out just one of these steps and expect to see results. Rather, all the little steps you take add together to build the attractiveness of your listing. Keep in mind that this is a process and that you can’t expect to see over-night results. But is you take the time to get proper tenants, you will be rewarded later on with minimal resident issues and mishaps.