The following are some great landlording questions from our students:
1. Should I charge an application fee when buyers apply to rent a property?
Yes. This fee pays for your time (or your employee’s time) to verify what the applicant puts on the application. Also, you will pay to check their credit and/or to do a criminal background check and that cost should be covered by what they pay for their application fee.
2. What criteria do you normally use to select who you will rent to?
- employment history
- income
- the amount of money they have to put down
3. Should I send out the rental contract in addition to the rental application in advance to everyone who applies so they can review it and know what they will signing before they’ve decide on the house?
No, you’ll overwhelm them with details they don’t care about yet. Wait until they’ve had a chance to see the house and fall in love with it. Don’t put potential obstacles in their way this early on.
4. I worry about someone willing to sign the rental/lease contract without reading it first.
Unless you read it with them, most people never read it anyway. Ask homeowners if they’ve ever read the documents they signed at their closing. What prospects care about is whether or not they want the house and if they can afford it.
We as landlords, however, should take the details very seriously. I have our residents prepare for a sixty minute “closing ceremony” when they plan to move into one of our properties. At that time, (hopefully they’ve left the children at home), I read over the contract with them line by line and have them initial the main items, as well as the bottom of every page.
Most tenants get antsy and just want to sign and leave. Make sure, however, to go over the details of:
- rent
- late fees
- bounced check fees
- pet fees (even if they don’t have a pet now, they may get one in the future and need to know what they will owe you for it then)
- repair responsibilities
- move out and eviction policies
Have them sign or initial all those lines to indicate the information has been explained and understood.
5. What is normally charged for pet fees?
I don’t know that there is a “normal,” but we do charge for pets. Even little Fluffy will cause damage. Many landlords charge a non-refundable pet deposit and some even charge an additional monthly pet rent per pet. Tenants love Fluffy and know she is worth it. These numbers can be negotiable as needed. I highly recommend a fee for pets as you will have additional costs for their damage when they move out.
6. What kind of background/credit check do you recommend?
There are many easy-to-use sources online depending upon what you want to check. One of the first we used was National Tenant Network. Read what these and others have to offer and decide what’s important to you. Fees do vary so check around.
7. What additional criteria do you go by in deciding who to rent to?
They must have a decent job/jobs with income that will cover the rent. They must be employed (do not count unemployment as income). We are more concerned with employment history and income than anything else. If they have a good job, make good money, and can pay their down payment with their first month’s rent, they’re almost qualified. Call their employer to verify employment and previous landlords to check behavior and payment history.
More questions? Check out my book The Essential Handbook for Landords!
What questions, tips, or suggestions can you add to this list?
Dec 10th, 2013 / 8:46 am
Darren:
I’m glad you have your father-in-law and wife for guidance, as I have no idea of the real estate market in Canada. My sister lives in Sydney and I know their investing circumstances are very different than ours.
“I believe there are good opportunities In Vancouver to develop a multi-revenue channel property company with lettings at its heart (also investment and home staging). The questions I have are about the profitability of the model and day-to-day management.”
Fabulous. We believe strongly in “multiple streams of income”. That way, when one area is weak, the other areas can carry it financially until the tide turns.
“Do you think it’s possible to build a profitable ‘stand-alone’ property management company or do problems with scale mean that you can only really build something truly profitable by creating a full-service model that may have investing and home staging etc. as components?”
Most of our local rental companies have sprung out of full service real estate brokerages. They simply added rentals to their business model. Our rental company grew out of requests from others that we handle their properties for them. At the time we opened our rental company to the public, we were managing about 60 of our own properties so we already knew the market and local property management rules and regulations. It may be wise for you to work for a property management company to learn how they operate, local legislation, necessary paperwork, etc. You are responsible to property owners as well as tenants so there are a lot of moving parts.
“I have an idea of the kind of business I want (recurring revenue, liquid, with potential to grow and provide capital to invest) and the lifestyle I’d like.”
Well, that’s pretty much what everyone wants, but it takes years and a lot of work to get there. We have been investing full time for 9 years. We now have 12 employees so we are able to come and go easily, but we still oversee the large decisions. We did everything ourselves for the first few years, then finally hired our first assistant. You need a lot of properties to have enough profit to cover salaries for others as well as for yourself. I recommend growing new businesses out of profits from the existing ones rather than taking on debt to start new ventures that you hope to make profitable in the future.
Each of these businesses you mention are certainly good choices, but each must be learned individually. Pick one and start. Add the others as you grow. We do not employ a property stager and have never staged a rental property. Most of ours are vacant for only 2-3 weeks so there’s no need or time. The only time we hire a stager is when we’ve done property rehabs/flips and we stage them when they’re ready to sell on the retail market.
Property management is a good way to generate cash flow. Learn the business before you jump in.
Owning your own properties is where you create wealth.
Good luck to you, keep us posted, and thanks for asking.
Dec 9th, 2013 / 11:37 pm
Hello there Karen,
I recently came across your blog during some research into new business ideas. I’m planning to launch a new business next year and am considering property management and investment. I wondered if you could possibly answer a coupe of questions that I’m wrestling with?
I have been working in PR for over 10 years and decided (after many years deliberating on what and when) to finally pursue a new entrepreneurial direction in 2014.
One of my shortlisted ideas is property management (and investment). The real estate and property lettings market here is healthy but it’s very difficult to invest in the market unless yore already rich or have a lot of capital. I figured the only way to take advantage is to capitalize on the market by focusing on rentals and investing. My father-in-law has a portfolio of 10+ rental units. And I still rent out my own apartment. My wife also recently started her real estate licence and has an eye for design and has helped furnish many of her father’s properties. All of this contributed to my focus on exploring this area as a potential new business.
I believe there are good opportunities to develop a multi-revenue channel property company with lettings at its heart (also investment and home staging). The questions I have are about the profitability of the model and day-to-day management.
Firstly, do you think it’s possible to build a profitable ‘stand-alone’ property management company or do problems with scale mean that you can only really build something truly profitable by creating a full-service model that may have investing and home staging etc. as components?
Secondly, I have an idea of the kind of business I want (recurring revenue, liquid, with potential to grow and provide capital to invest) and the lifestyle I’d like. However, is it possible to build a sustainable and profitable property company like yours without having to be around all the time or involved in everything day-to-day? Are you able to work remotely and on other projects – and if so how many years did it take you to get to that place? I want to set up the right business for me but I don’t want to have to be attached 24/7.
I really hope you can provide some feedback and advice – it would make my day!
All the best,
Darren.
Apr 12th, 2013 / 12:06 pm
Thanks for reading my post!
Apr 12th, 2013 / 10:27 am
Usually pet issues are ignored by people. But I am so glad to see here the consideration. Thanks Keren!
Apr 12th, 2013 / 9:02 am
Property Managment Questions and Answers http://t.co/SspOgQhJ30
Apr 12th, 2013 / 9:02 am
Property Managment Questions and Answers http://t.co/aytFcf7oKG
Oct 23rd, 2010 / 10:11 am
Joe: Great question and an ever present problem, right?
99.9% of the time, yes, I’m going to cash the check. Main thing is you want your payments covered and the late fee is really (1) to encourage them not to be late and (2) to pay for your time and aggravation!
But, the late fee is real and they have to take it seriously. So, I send a reminder and a notice that they still have money owing and that they will not be current until the late fee is paid, meaning that they will owe late fees every month until their account balance is brought back down to $0. I typically “forgive” one time.
How far you let them get behind is up to you. You want to keep your property filled and get your bills paid, but tenant aggravation has its limits!
Oct 22nd, 2010 / 7:08 pm
How do you go about collecting late fees if the tenant does not automatically include it with their payment? Do you cash the check that they did send? Thanks.
Sep 1st, 2010 / 2:14 pm
We do the same thing – 3x the rent. Tenants really argued when the banks were giving loans to people who made less than 3x. We all know how that’s ended for the banks…
Sep 1st, 2010 / 2:02 pm
I agree – employment history and income are the most important qualifiers for acceptance. I typically will NOT rent to someone unless they can prove 3X the rent in ‘take-home’ pay. I don’t want to put people in a position of them having to scrape buy to make rent payments – sooner or later they will choose to be late.
If they have 3X rent in take-home pay, they can typically afford the property – unless they are straddled with debt!
Aug 31st, 2010 / 2:50 pm
This is great! I hope to have property to rent in the future and this will give me a start on how to ask the correct questions and get the “right” tenant. Thanks Karen, you do a great job.