Every Landlord's Guide to Finding Great Tenants

Janet Portman

• Publisher: NOLO
• Year: 2020
• ISBN:
  9781413327533
• Edition: 5
• Topic: Law
• Subtopic: Real Estate Law
• Index: Law

Bad tenants are a landlord's worst nightmare: Headache tenants can destroy property, take up your valuable time, damage your bottom line, and make your job as a landlord miserable. Choosing tenants who will pay rent on time, respect your property, and stay for the long term will make your life easier—and your business more profitable.

This book coaches landlords on how to attract, screen, choose, and retain the best renters possible. Landlords will find everything they need to set up dependable and fair processes for bringing on reliable and financially qualified tenants. The advice in this book helps landlords effectively advertise their rental vacancies, prepare rentals for showings, spot potential problem applicants, reduce exposure to fair housing lawsuits, and much more.

Along with countless tips and cautions, this book provides numerous forms and checklists landlords can use to ensure they are complying with applicable laws and managing their rentals in the most efficient and profitable way possible.

CHAPTER

1

Choosing Good Tenants Makes Good Business Sense

Ten ways to keep your rental business profitable

1. Make a plan

2. Deal with current tenants fairly and respectfully

3. Comply with fair housing laws

4. Be consistent

5. Maintain some flexibility, especially with tenants who are legally disabled

6. Screen thoroughly, then rank your applicants

7. Be careful what you say

8. Put it in writing and keep good records

9. Screen all occupants and roommates

10. Get professional help or advice when you need it

How to use the Landlord’s Forms Library

Why good record keeping is so important—and how to do it

Make a new marketing folder every time you begin rerenting efforts

Create a file for applications you receive for this property

Make a file for your chosen tenants

Tenants are your most valuable asset, and choosing good ones is the most important decision landlords make. A bad choice can result in damage, hassles, and lost rent. Even when you choose the best tenants possible, turnover is expensive: It costs the average landlord two to three times the monthly rent every time tenants change. These costs include lost rental income, advertising and screening costs, and the value of your time to pull together and run the whole tenant selection show.

Having quality tenants who stay for the long term does more for your bottom line than minimize your turnover rate. Your business will prosper in other ways, too:

•You’ll avoid costly discrimination complaints and lawsuits.

•You’ll save the time, money, and headaches of terminating a tenancy or filing an eviction lawsuit (or fighting a tenant-initiated lawsuit).

•Other tenants are more likely to stay put, and

•You’ll have a steady cash flow.

Ten ways to keep your rental business profitable

The blueprint for a profitable rental property business is fairly simple and consists of ten basic principles. This section lays out these principles, and other chapters in this book show you how to implement these practices.

1. Make a plan

Before you escort a prospect through your rental—and even before writing your ad copy—you need a specific plan for getting your place rented. The best plan has five basic steps:

•Establish the main terms of the tenancy. Decide on the rent, deposit, date available (build in time for repairs and refurbishing), pet policy, number of occupants, length of the rental term (month-to-month or a long-term lease).

•Set basic requirements for viable applicants. Choose a minimum acceptable income, how many positive references from employers and current and past landlords they’ll need, and your criteria for a healthy credit report. Decide whether you’ll do criminal background checks on all applicants who make it through your basic screening. Determine what policies are nonnegotiable and what you’re more willing to be flexible about.

•Plan your advertising strategy. What you’ll say in your ad depends heavily on your rental terms and resident requirements. Now, where will you advertise? To craft a successful strategy, you need to figure out who will be your likely tenant (such as singles, a family, students), as well as the temperature of the market for rentals like yours.

•Prepare. Get ready for phone calls and showings by having details of your property at hand (such as the exact size of the bedrooms, neighborhood features) and facts about the competition. Your preparation should also include getting your place in shape before you show it, and working around current tenants (if any).

•Show the unit. You can do individual tours or hold an open house. This choice will depend heavily on your market and your personal preferences, and will affect how you advertise.

Developing a plan and implementing it will put your rental on the radar of people who are likely to want to live there, and who will be the kind of tenants you want.

2. Deal with current tenants fairly and respectfully

Although your mission is to find new tenants, you can’t do so without interacting with the set that’s still there. You must respect their privacy and follow state laws on showing their home to applicants. This will help you avoid legal hassles with departing tenants, while showing newcomers that you are an upright landlord who follows the law.

3. Comply with fair housing laws

You’ll operate at your peril if you don’t know and follow federal, state, and local fair housing laws, which should inform your words and deeds at every step of your selection process. Make choices (on where you advertise, what you say, how you screen, and how you choose tenants) based on sound business reasons, devoid of stereotypes or your personal feelings. Unless you can say, “Any reasonable businessperson in this situation would do the same thing,” you might be applying preferences or assumptions (about particular races, religions, ethnic origins, and the like) that could get you into legal trouble.

4. Be consistent

Consistently applying your screening and selection criteria is the hallmark of a lawsuit-proof business. Here’s why: Suppose you reject an applicant who has insufficient income, but accept another applicant who has a lower income. If the rejected applicant is a member of a protected group, he might claim that the rejection was due to his religion, ethnicity, or membership in another legally protected group. You’ll have an uphill fight to dispel this claim. The only way to win is to avoid, in the first place, inconsistent application of your tenant-screening and selection criteria and practices. This includes, for example, showing the unit to all who qualify, accepting applications from every interested applicant, and checking references and credit for all who meet your business-based standards.

5. Maintain some flexibility, especially with tenants who are legally disabled

Wouldn’t you know it—the law tells you to be consistent in one sentence, yet flexible in the next. Yes, it’s true—you must vary your criteria and standards, when necessary, for tenants and applicants who are considered legally disabled. That will happen when the variation is required in order for the person with a disability to live comfortably and safely at your property, and when the change will not be unduly burdensome for you. Chapter 2 explains these rules in detail.

Flexibility is also in order when dealing with first-time renters. Logically, these people would never be able to rent if the lack of a current or prior landlord reference automatically eliminates them. There’s nothing wrong with substituting equivalent criteria for first-timers (such as accepting nonlandlord references), as long as you apply the same approach to all first-time renters.

Understand the Complications of Using a Tenant as Your Manager

Owners of multiunit buildings often hire tenant-managers (some state laws require that a manager live on site for larger properties), and many small property owners who live far away choose a tenant to handle day-to-day issues for them. When screening applicants for the tenant-manager position, understand that you are now an employer as well as a landlord. To avoid legal problems, you must follow employment law basics, understand the tax issues involved, and clarify the role of the tenant-manager. In particular, managers need to be as well versed in fair housing law as you are, because their mistakes will land at your door.

6. Screen thoroughly, then rank your applicants

Always take the time to do the checking necessary to assure yourself that a person is a good business risk. Nothing will be gained by hastily choosing a tenant. No matter how certain you are that your instincts will not let you down, or that you’ve learned enough after looking at a credit report (but before talking to references), you cannot afford to take a chance by renting to someone who has a skeleton in a closet that you didn’t open. First, it will cost you time, money, and endless aggravation to get that tenant out; and second, if you shortcut your process for this tenant but not for another whom you reject (and who happens to belong to a protected group), that disappointed tenant might have grounds for a fair housing claim.

7. Be careful what you say

Protecting your bottom line involves not only what you do (ordering a credit report for every top candidate who has made it past the application review, for example), but what you say along the way—from the first phone call (when tenants inquire about the rental and you do some prescreening) to the last (accepting or rejecting tenants). Ill-chosen words can precipitate a fair housing lawsuit, commit you to promises that you never intended, or sow confusion leading to problems.

Be sure you know how to get the information you need—but avoid fair housing traps along the way. For example, it’s fine to ask how many people will be living in the rental unit to make sure they meet your reasonable occupancy limit, but asking about the ages and sex of the occupants, and whether they are married, can be an invitation to a lawsuit.

Though it’s tempting, don’t puff or overhype your rental. It’s fine to be enthusiastic and extol the benefits of your property, and it’s necessary in competitive markets. But promising things that are only remote possibilities (such as that a parking space will open up soon) can lead to trouble. The bottom line: Deliver what you promise.

Finally, clearly explain to tenants your key terms, policies, and expectations, and do so early in the screening process. You’ll avoid wasting time on inappropriate tenants or tenants who want something else (such as a property that allows pets).

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