When putting your home on the rental market, follow these seven tips to help protect your property and yourself...
Start off with listing the home the best way. Considering the majority of tenants start their search online, list your house on popular websites such as rentals.com, craigslist.org, zillow.com, trulia.com, hotpads.com and yahoo.com. Online marketing is less expensive and way more effective than newspapers. Use lots of photos of the house and a nice detailed description, while keeping in mind fair housing laws (i.e. no mention of children, religion, age, etc in your ad - see www.hud.gov/fairhousing.). We recommend using a for rent sign in your yard when possible as some tenants also drive by looking for homes. Also spread the word through friends, relatives and co-workers.
Always (always!) require every potential adult tenant to fill out an application, listing their basic information: name, employer, salary, previous landlords and references from the last couple of years. You'll also need their Social Security number and signed authorization to check their credit reports and criminal history. If a prospective renter refuses to give you information or fill out an application for whatever reason, say goodbye and move along.
Treat renting out your home as a business, being respectful and professional but try not to give in to your emotions when screening tenants. Beware of renting to family members or friends, it hardly ever works out well. Beware of potential renters who give you a sob story, hoping you'll skip the credit check or overlook a bad report. Do not accept partial payments on the deposit or rent before the tenant moves in. Check references, contact employers and talk to previous landlords. However, some previous landlords may not give out information, or perhaps misleading information when they are upset when a tenant is leaving, so use common sense when asking questions and evaluating answers.
Get an idea of area rental rates by checking newspaper ads, online resources and other neighborhood homes advertising for tenants. Be realistic: What you charge may be lower than your mortgage payment, but if you want to find a good tenant, the rent must be comparable to other properties on the market. Some landlords like to list high, but you risk delaying finding a tenant, some list at market value and some like to list low to attract as much interest as possible. Choose whichever you are comfortable with but fist be aware on what actual market value is.
Protect yourself! Only a written lease in enforceable by law, and when choosing a written lease make sure you have a good quality one that will protect your interests while being fair to both parties. The "LPA" Landlord Protection Agency (www.lpa.com) offers pro-landlord leases and many different useful forms. They also offer lots of useful advice and a monthly newsletter for Landlords.
A good-quality lease complies with fair housing, rental, health and local landlord/tenant laws. Avoid using blank leases from the Internet or from an office supply store, because they may not comply with your local area and they are usually not very pro-landlord. A good lease should spell out the following:
Lease term. A month-to-month lease offers more flexibility if you're still trying to sell, but an annual lease provides stability if you plan to hold on to the property.
Security deposit. This is usually one month's rent or more. Don't agree to take partial payments as this indicates financial instability of your prospective renter.
Due date for rent. Spell out penalties if the payment is late.
Repairs. Detail who is responsible for what.
Routine upkeep and maintenance responsibilities. Lawn care is one example.
List of tenants. Know who is living in your property.
Rules of behavior. Lay out the acceptable noise level, proper neighborly conduct and whether smoking is allowed.
Pet policies. If you allow them, specify the deposits.
Homeowner association dues and rules. Explain whether these affect your tenants.
Arrangements for showing. If you plan to keep your home on the market while it's being rented, spell out how this will be handled.
Eviction terms. Let your tenants know that not paying the rent or damaging the property won't be tolerated.
Protecting yourself and your property with appropriate insurance is very important. You need different coverage if you're renting a property to a tenant versus using it as your primary residence. While you live in the house you need a homeowner's policy which covers the structure of the home, personal liability, medical expenses and your belongings in the house. As a landlord, you'll need rental property insurance. This policy may include higher liability coverage, and loss of rental income in the event of a covered loss.
Since you are not responsible for their belongings, encourage tenants to buy renters insurance. Although it is not usually required, is helps if something were to happen to the home that damages the tenant's belongings, and your own household insurance policy may not cover the tenants belongings.
Before the tenant moves in, take plenty of photos of the home inside and out (the more the better) and use a written inspection court such as one from the LPA.
After the tenant moves out immediately enter the property and perform the same inspection. This is fair to both you and the tenant as it is an accurate recording of the condition of the home at move in and move out. You can deduct for any actual damage to the home, but not for normal wear and tear to the property such as carpet wear due to normal use. The tenant must keep the house in good condition but you cannot expect them to maintain it as you the homeowner would. Every home needs a certain amount of routine maintenance each year that you need to budget for. More costly items such as painting, carpet replacement, appliance replacement, etc are expected every few years.
If you move from the local area, or just lack the time or flexibility to deal with the renting of the home and dealing with maintenance & tenants altogether, hire a property management company.
These companies primarily charge fees for two services: finding a tenant, which includes advertising and background checks, and managing the property. In central Florida the fee for filling a house varies from about 50% to 100% of one month's rent, depending on the Company. Then, for typically around 8% to 10% of the monthly rent, the company collects rent, charges late fees, handles repairs, inspections, and deals with early vacancies and evictions. Beware of any hidden fees and always ask about the company's cancellation fee and policy.
One advantage of using property managers is emotional distance. "Often, the owner will get involved with the tenant emotionally," says Cathy Swanson, past president of NARPM. "Even though (property managers) take good care of tenants and they're sympathetic, their job is to make sure that owners get the rent."
A comprehensive application and strong rental criteria will eliminate 95% of problem Tenants. However there is always some risk in renting your home. In the worst case scenario you'll need to evict a tenant. If the tenant doesn't leave willingly, unfortunately you can't just go change the locks and kick them out. You have to go to court, and the sheriff needs to come out and physically remove the person. An eviction attorney alone can charge from $500 to $1,500. But when all other costs are added, you could end up spending easily 2-3 month's rent. However, when a tenant doesn't pay rent, you are better off evicting them quickly rather than giving them an extra few weeks to pay and then regretting it later.
Renting your property can be a pleasant, successful experience. Educate yourself and have realistic expectations. I wish you happy land-lording!
Oliver Overton-Morgan
Oliver Overton-Morgan is the Broker of Absolut Realty Inc, an Orlando-based investment real estate and property management company.
Oliver Overton-Morgan is the Broker of Absolut Realty Inc, an Orlando-based investment real estate and property management company.
