How smart landlords handle rentals

Take these tips from experts on managing your rental property. For example, don't skimp or take shortcuts when screening for tenants.

Owning rental property seems like an easy way to generate extra income. But it's actually not all that easy.

Nevertheless, the number of people buying second or third properties as investments has grown tremendously, according to the National Association of Realtors. In fact, the group's recent survey found that 36% of home sales in 2006 were second homes and 35% of current investment-property owners plan to buy another property in the next two years. Since 46% of those questioned by NAR said they bought the investment property for the rental income, it behooves landlords to be scrupulous in searching for good tenants.  Or hire a great property management company to do this legwork for you.

Landlords who take shortcuts when screening potential tenants, who skimp on insuring the property or who fail to outline everything in a detailed, written lease can end up with unpleasant and, yes, costly surprises. But there is one shortcut neophyte landlords can take: They can listen to the pros so they won't have to learn lessons the hard, expensive way.

Do your own due diligence: A case studyTake, for instance, the tenant who so looked good on paper, with his attractive credit report and handsome deposit check. Too bad the paper he looked good on was bogus.

Apparently, this seemingly perfect tenant doctored his credit report, giving himself a stellar rating. Then the guy bounced his hefty $4,000 deposit check. Pasadena, Calif., landlord Payman Emamian blames his real-estate partner for renting to this con man. Not only were they out money, but the lying tenant damaged the investors' two luxury Hollywood town houses. (The guy claimed he'd work in one and live in the other.)

After three months, Emamian successfully evicted the man, but not before he ran up a $20,000 tab for back rent, legal fees and repairs.

Emamian's advice to landlords: "Never accept a credit report that a tenant brings you."

Emamian, who bought his first rental property -- a four-unit building -- in 1998, says he's learned to double-check everything. To help landlords dig into backgrounds, companies such as the National Association of Independent Landlords, of Houston, provide credit reports and scores for $15.95 each. Landlords must first get the applicant's permission, signature and Social Security number, plus they must provide their own proof of real-state ownership, photo identification and credit-card number for payment. NAIL also provides a host of other background checks, including a nationwide criminal search for $12.95 and a national eviction search for $5.95. Many landlords charge prospective tenants an application fee to cover the costs of screening.

Emamian doesn't stop at second-guessing tenants. He applies the same level of scrutiny to information provided by sellers when he's scouting a potential rental property. "Never listen to sellers as to what the expenses are," Emamian says. "You research."

Most buyers know they need to foot the bill for taxes, insurance and some maintenance, but many don't factor in utilities, landscaping, private trash collection or the loss of income when the unit is vacant.

Check referencesAs for screening tenants, Emamian always asks for two landlord references. The past, not the current, landlord is the most important reference because the present landlord may fudge the truth to get rid of a terrible tenant. Also, the landlord can either pay an outfit like NAIL to question present and previous landlords and employers or do it himself. Emamian also asks for a copy of a bank statement.

"I want to make sure they have assets -- how is that check going to clear?" says Emamian.

Jim McDavid has survived 40 years as an owner, manager and seller of rental property by doing very thorough due diligence, and basically by doubting everything prospective tenants tell him. In fact, McDavid says he gets a police report on applicants and asks for photo identification as an extra precaution. Although procedures vary from state to state, McDavid says in Virginia he simply walked into the sheriff's department and paid a small fee for the criminal background check.

"I've owned just about everything in the book," McDavid says. "I owned condos in Florida and houses in Charlotte (N.C.)." McDavid, a licensed real-estate broker in his home state of South Carolina, as well as in North Carolina and Virginia, says, "Everything changed on 9/11, even in real estate."

Buy adequate insuranceProtecting yourself goes beyond combing through a tenant's background. McDavid says that too often landlords skimp on a very important item: insurance.

"Tenants create all possible situations you can imagine," he says. McDavid tells of a young woman who rented from a client. The woman's boyfriend slipped her two illegal drugs -- Ecstasy and methamphetamine. Her family is suing the boyfriend, the lender on the property and the owner of the town house.

"Protect yourself against the impossible," McDavid says of insuring rental property. "You need as much (coverage) as you have on your automobile driving around." Also, most experts recommend requiring tenants to have renters insurance. The owner's coverage repairs and replaces only the actual structure and many times the appliances, but not the tenant's belongings.

Another form of protection is proof of a property's condition. McDavid suggests having a written, signed document with photos of the property when the tenant moves in.

"Establish a baseline," he says.

Just say 'no' to form leases

And what about those leases for sale at office supply stores? They're useless because each state has different landlord and tenant laws. McDavid suggests getting a standard lease for your state from a real-estate office or association.

Warren Wheeler, a real-estate attorney in Atlanta, agrees.

If you buy a lease-in-a-box, Wheeler says, "for a good bit of time that works -- until there's a problem." Those generic form leases also don't take into account concerns for different types of dwellings. A high-rise luxury condo will have different stipulations than half of a duplex or a converted row house or a single-family home on an acre of land or a unit above a bakery. Get an attorney to help add provisions particular to your property, Wheeler suggests.

Also, set up house rules, put them in writing and enforce them uniformly. If one tenant thinks another tenant gets special treatment, it could be considered discriminatory.

"You can't discriminate racially," Wheeler warns. "There's a federal law against that."

Heed environmental mattersWith environmental concerns taking center stage nationwide, landlords, too, have to take heed. They must watch out for lead paint, asbestos, mold and overall indoor-air quality, says Robert Gallo, certified indoor-air quality manager who is director of sales and marketing at RTK Environmental Group in Stamford, Conn. "If the structure was made before 1979, chances are it will have lead paint in it even if it has been painted over," he says.

First, Gallo says landlords need to give tenants the U.S. Environmental Protection Agency booklet "Protect Your Family from Lead in Your Home." Then Gallo recommends having the property inspected by a licensed lead-testing company. "Most people are poisoned not from eating paint chips, but from the dust," he says.

Gallo says the do-it-yourself lead-testing kits examine only the surface, but can't determine if there's lead underneath. His company uses X-ray fluorescence to scan every painted or sealed surface. He charges at least $425 for up to a 3,000-square-foot home, which includes a diagrammed report and advice on the cheapest and safest way to correct the problem. To protect against mold, Gallo says clean up all water immediately.

Consider hiring a property managerChris Mauzy, founder of Rent Solutions in Lakeville MN., actually tells his clients not to deal with all of these details. Instead, he urges his clientele to farm out that work to a professional property manager.

"If you're retired, that can be your job," says Mauzy, who considers himself a real-estate wealth developer. "If you already have a job, do not take on managing your own property."

A better option, in his opinion, is to have a property manager handle the day-to-day dealings. To do this dirty work, property managers typically charge a percentage of the rent, with many charging as low as 4% for very large complexes and up to 10% for single-family homes. The property owner, Mauzy says, should "learn to manage the equity in the property and buy other property, while managing the manager."

The owner's concerns should be finding out how to increase the rent by improving the property while decreasing expenses. "The owner should be doing the thinking work and not the physical work," he says.

Other matters to considerVander also tells her clients not to go it alone. "Get involved in an apartment association," she says. That way, property owners have others to turn to for advice, forms and referrals. She recommends establishing separate bank accounts for each property so that the finances of each investment can be analyzed separately. It's also important for keeping tax records straight.

Finally, each expert recommends demanding an adequate security deposit from tenants, a form of protection if all the above fails. And to avoid the headache that Emamian experienced, insist on getting the deposit before the tenant moves in -- and in certified funds: cashier's check, certified check, money order or, of course, cash.

By Otesa Middleton Miles, Bankrate.com

Downsize and cut your costs without selling your house

If you can swing it, and you're game for the renting life again, becoming a landlord and a tenant may be your best bet for covering your mortgage without giving up your home and selling at a loss.

If, like many Americans you can no longer afford your house, renting it out and trading down into a rental yourself might help you to save money and avoid foreclosure.

However, renting out your home won't work for everyone, experts say. Strapped homeowners need to take a good, hard look at the costs, risks and obligations associated with becoming a landlord before they put up a "For Rent" sign. It's not as easy it seems, experts say, and it's often more costly.

Here's a quick guide to weighing a move to landlord — and tenant — in order to save your house and investment.

Add it up
The first question homeowners should ask themselves, experts say, is how much it costs to own their house.

"The basic equation is pretty simple," says Janet Portman, author of "Every Landlord’s Legal Guide" and the upcoming "First-Time Landlord: Renting Out a Single Family Home." "You need to know if what you can expect to bring in as a landlord will be more than your costs as a homeowner," she says.

Add up all of your costs — everything from your mortgage payment, to property taxes, to insurance, to homeowners association fees and any maintenance you pay for. What does it cost to own this house?

Next, figure out what you need to do to spruce up the place, so it will be ready to rent. You should count on springing for new paint, carpet cleaning and any repairs to leaky faucets and malfunctioning appliances. You might also need to put in new flooring, lighting or a heater, as well.

Getting the house in the best possible shape is the key to landing the right kind of tenant, Portman says. Get bids from contractors and come up with a total upfront cost. Then determine if you have the cash to make those repairs.

While fresh paint and new fixtures may seem unimportant, says Matt Griffin, president of Houston-based Residential Leasing & Management Corp., they’re not, in today's competitive rental market.

"Curb appeal is terribly important," Griffin says, recalling one house of his that had languished on the market for a couple of months, but was leased just 12 hours after he put on shiny new doorknobs and other new hardware. "The only way to get quality tenants is to lease the house in good condition."

What can I get for it?
After you know what you will have to spend, you need to determine what you can make from the property. How much rental income will it bring in?

Check out classified listings in the local paper, Craigslist and property management sites like Rent Solutions. (You can search by ZIP code on MSN Real Estate's Rent Center, or you can have Rent Solutions provide you a rental analysis report which compares your home with up to 20 nearby rentals). But don't stop there. You need to actually tour some of these rentals if you do not elect to use a property management company like Rent Solutions, Portis says.

"Pretend you are a tenant and go look at some of the places for rent," she says. Not all three-bedroom, two-bathroom houses in a neighborhood are alike. Check out your competition and see what level of amenities is included in that price. Do you need to adjust your upfront costs to spiff your place up?

"A lot of people with homes that aren't selling are turning them into rentals," Portman says. That's made the rental market much more competitive. Make sure your house compares favorably to others in its rental range.

A good rule of thumb for the average house is it will rent out monthly for 1% of its value. So, a $150,000 house would likely get $1,500 in rent, Griffin says. However, this varies widely from market to market, and it does not apply to luxury houses, which actually drop below that percentage the higher they jump in value.

Check the vacancy rate in your area with a local real-estate or property management company. If there's a lot of competition, Griffin suggests dropping your price a bit below market to get your property leased faster. Taking a $50 reduction in monthly rent can save your property from sitting for months and costing you more in the long run. Do you want to lose $4,500 in three months without a nibble on your $1,500 property, or lose $600 in a year for that $50 price reduction? It's your call. Just make sure you can cover your mortgage and other costs with that rent (or come close).

If not, you're going to have to find very cheap lodging to make up the difference. Would you be better off taking in a roommate and staying put?

Top Tips For Successfully Renting Out Your Home

Below is a great article written by Brigitte Yuille with Investopedia.com.  She does a great job detailing out the many benefits of renting your home.  She also lists out many critical steps that you need to perform as a landlord.  If you want the rental benefits without being a landlord, you need RentSolutions.   Rent Solutions will professionally manage your property so that you can relax and enjoy the revenue and tax benefits without the headaches.  Please give us a call and one of our professional property managers will walk you through our simple program.

Many people mull over the idea of renting out their homes in a down market. They may want the benefit of extra income to save money or pay down bills, or they may choose this method as a way to wait things out until the economy improves. The motives are plentiful but it's possible for this plan to become more trouble than it's worth when appropriate considerations aren't made. Here are five steps that will get you going in the right direction.

1. Understand The Responsibility Involved

First, you must determine whether being a landlord is an obligation you can even handle. The benefits of renting are numerous, such as the ability to deter the vandalism that often plagues an empty home, the ease of tax breaks and the ability to generate income that covers the bills and possibly even creates a profit.

However, being a landlord is also one more responsibility you'll need to fit into your life, and it's safe to assume that things will sometimes fail to run smoothly. You'll need to stay on top repairs and maintenance, collect rent, dole out more for your home insurance policy and try to avoid creating a less appealing home for potential buyers by keeping an eye on your tenant's housekeeping skills. (For another take on renting, check out The Hidden Costs Of Renting The Basement.)

2. Prepare Your Home

In a down market, you won't be able to get away with renting out the home as is. Tenants are more attentive and choosy in a down market because of the increased availability rental homes, and their expectations are much higher.

Prepare for the new tenant by thoroughly cleaning your home and making sure any appliances are working and are in good condition.

If you've decided that you are renting out a room or area within your house, make sure that you can secure that area from the rest of your home.

Once the house has been straightened out, develop a list describing what makes the house appealing. Take note of those commonly desirable features such as a washer and a dryer, air conditioning and garage. Use rental terms to help "sell" the property. According to RentalsOnline.com, words and adjectives that'll really help you get a renter include: "granite", "state-of-the-art", "stainless steel appliances", "vaulted ceilings", "maple", "gourmet", "corian" and "wood floors." Be sure to use any and all of the terms that apply to your home.

Next, post the advertisement of the home on reputable websites and in local newspapers, as well as in places you commonly frequent, such as your local grocery store or your church.

Also, stay mindful of the time of year during which you plan to rent. Renters generally move in particular seasons; March, April, May, June, July and August are typically been the best times to locate a tenant, according to RentalsOnline. (For more, read 5 Things Every Real Estate Pro Knows.)

3. Hire Professionals

Renting out your home may seem like a simple task, but it's important to talk with attorneys and other professionals to make sure you are abiding by tax laws and local property rules as a result of the new status.

For instance, the IRS stipulates that all rental income must be reported on your tax return. Sure, you may qualify for tax deductions, but it's important to know which expenses are deductible. Plus, there are limits on how much you can deduct each year, and the amount you are able to deduct may differ with the rental activity reported on your tax return.

An attorney can also help you navigate the landlord-tenant laws, which vary from state-to-state, and help you understand your community's rules governing rental properties. You can also seek help drafting the lease, making sure that it follows local laws. Finally, talking with an attorney can help you determine suitable house rules and emergency contacts. (For more, see The Benefits Of Using A Real Estate Attorney.)

4. Set A Competitive Price

Set the cost of the rent by learning what other rental properties are going for in your neighborhood and community. Remember, potential tenants will be scouting around for deals, so set the rent at a competitive price and make sure you highlight all the most valuable aspects of your home.

 5. Screen Tenants Carefully

Start looking for a tenant as soon as your property is ready to be shown. Then, choose your tenant very, very carefully. You need to be able to depend on this person not only to pay the rent on time, but also to keep your home in good condition. Also, if the person is someone you may be cohabitating with, learn their habits so you won't run into any nasty surprises. (Looking to rent? See, Take Advantage Of A Housing Crisis - Rent! to find out how.)

Don't forget to gather references for potential tenants and check their credit histories. You should also take safety precautions when screening a tenant - after all, this person is a stranger!

Once you've found the right tenant, ask for a reasonable security deposit and arrange an appropriate payment schedule.

Conclusion

Renting a home to a potential tenant during an economic slump is beneficial for both parties - but only if homeowners take the time to address and prevent the potential pitfalls of this option. After, all it's still your house!  Give Rent Solutions a call at 612-367-7848.