How to attract and maintain good tenants
Writer’s note: To finish off my brief series on real estate investments, I’m going to let you know some thoughts on how to keep your income stream stable and that is to bring in a good tenant and keep them happy and in-line.
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A typical home in the area of East Palo Alto where we have invested – Source Trulia.com
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1) Renovate you rental property to a high standard. By doing this you will be able to charge higher rent and by default attract a higher quality applicant.
It helps if you did your research beforehand and understand what the going rental range is so that you can anticipate a realistic rate. For example, if the rental range is $1000 to $2500, you best be in the $1850-2250 range, depending on your house size. I would not go to the maximum, since you might also eliminate a lot of good applicants who are “working their way up” the ladder.
Up and coming professionals (people who can pay) like to have updated kitchens and bathrooms, so if that is what it takes, I’d do it or do it when the opportunity allows (between tenants).
2) Deposits. Expect one month’s rent deposit before the first day the lease starts or within two months by installment.
Expects the deposit upfront first, but if you believe you have a solid tenant, Be flexible. For example, allow them (write up the lease to reflect this) paying in a couple of installments, but if your tenant can pay upfront, absolutely take it when they sign your lease.
3) Agree to a 1-year lease. This way a you at least get someone with an intention to stick around for a year or longer.
4) Go over the checklist. Have the house professionally (i.e. a maid service) cleaned before tenant’s move in. Inspect the house for discrepancies before the tenant moves in.
The tenant will need to go over a checklist, noting the condition of the house. Having the house prepared keeps this process smooth as possible and puts the burden of keeping the house in order on the tenant. Take pictures.
5) If you speak the local language, it helps a lot. Some communities are strongly one ethnic group, so it’s very helpful to have a bilingual representative who knows the community and is good judge of people’s character out there screening applicants when they go to the property to see it.
6) Special Checking Account. I recommend creating a special checking account just for rental income and having tenants pay directly every month into that account. Some tenants go to the bank, others have direct transfer. Either ways, I’m not having people send a check to my home address, nor am I going to their house banging on their door ever month.
7) Late Payments. After a year, If a person is late paying once by some unexpected cause, like their direct deposit stopped or a family emergency, I’ll let it slide once. If there is the slightest hint that it was due to negligence or it happens twice in a short period (maybe one year), charge the late fee. If they’ve clearly been a reliable paying tenant and they called you to help clear things up, I’ll be flexible once. But only if they’ve established themselves as reliable.
8) Bounced checks. Always charge the return check fee. After three bounced checks, only accept cash deposits.
9) Partial Payments. I’ve tried this and it is a nightmare trying to keep track of how much that tenant owes every month. Have them pay the full amount, even if it is late (with the late fee).
10) If you have to give a 3-Day Notice, you will forfeit the late fee, but there comes may come a time when you must put the fire under the tenant to pay. If you actually need to carry through, I advise you get some help through a local law office on the eviction. If the late fee is still in effect, all payments pay the late fee first, principle second. The 3-Day Notice can only be for the remaining principle.
11) Mutual Agreements to Terminate Lease
If you’ve got a tenant who is obviously going through some unexpected rough times and cannot pay their rent. If they are honest people and not trying to screw you, they may be open to terminating their lease so they can relocate to a less expensive situation. If they owe backrent, get them to come up with a payment schedule to pay you the money their owe you. Get them to sign it. If you are nice, you might forgive the late fees, as long as they adhere to their proposed schedule (otherwise tack on a penalty).
12) Changing Colors. Make sure the tenant understands that if they want to repaint any part of the house, they should have you approve it first. Some colors are not easy to paint over. Personally, I don’t like anything but a light earth tone or white.
13) Pets. The main things about pet dogs is is that they are a good deterrent to crime. Otherwise, although I like dogs, I’m not too crazy about pets that mess up properties.
14) Gardener. Unless the tenant has clear ability to take care of the garden and yard, I hire a gardener and include it in the rent.
15) I do not pay utilities, at least it is not required by law here. Make sure the tenant takes over the utility bills, this should be in the lease agreement.
16) When you do interact with the tenant, be courteous and friendly. These are people who just happen to have to rent your place. Treat them with respect and they will do likewise.
17) Have a good attitude about fixing naturally occurring problems with the property that you as a landlord are responsible for. Things like water heaters and furnaces go out sometimes. Keep in mind, the tenant, though they are getting the use of your valuable real estate, is paying your mortgage on the house which will ultimately lead to residual income.
Even if you were living in the house yourself, you would have to spend money to repair the property so don’t have an attitude like the tenant doesn’t deserve to have a well maintained place to live in. There are certain systems in the house you are responsible to repair.
I do appreciate it when a tenant can handle their own day to day problems. I’m not too much into a tenant who has to call you when a lightbulb goes out. Hint: Screen for that in the beginning unless you want to take on a new job as a handyman.
18) Build your TEAM. Maintain a good relationship with your realtor and other more experienced property manager. A good realtor and property manager have been there done that. They know things about dealing with properties that you do not. It’s part of the good practice of learning from others and establishing coaches and mentors where possible. Also find and stick with a good contractor/handyman, this team member will help you get out of jams that you have no time or knowledge to deal with. Lastly, for doomsday situations, find a reputable local law office who specialize in helping landlords and evictions notices, you can often get free advice from the paralegals.
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In Closing
I hope you’ve enjoyed this little excursion into the world or real estate as a residual income source, please like share and comment.
If you have any questions, feel free to send me an email.
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I’ll see you… on the next page
Challen Yee