For the past three years, I've been a landlord of a duplex in the Metro-Detroit area. This has been my primary source of income and is probably one of the smartest things I did during my college career, other than going to class. It was smart for a number of reasons: It paid much of my living expenses; I learned to live alone; I enjoyed my autonomy; and I've learned some valuable business lessons. Especially in todays market, if you're in the position to, buy a house and rent it out.
That being said the learning curve can be steep at first. You need to know how to interact with potential tenants, somehow striking a balance between friendly neighbor and the guy who has to collect rent. Emphasis tends to shift towards the latter at the expense of friendliness most of the time. Writing your first lease, enforcing it, collecting rent, raising rent, negotiating rent, evicting tenants, going to court, not to mention daily upkeep are regular activities as a landlord. All of them can be very stressful, especially when your full-time occupation is as a student or something else.
I recently finished going through a very nasty eviction process with one of my tenants. I live in the lower unit of a duplex, renting out the upper, and the garage. I had a family of a husband, wife, and two kids renting the upstairs. One day they stopped paying rent. More specifically, after paying the move in cost, they never paid rent again. The husband worked two jobs, while the wife was a stay at home mom. When they decided to get a divorce, both of them came to me to settle their problems. The husbands had signed the lease, and he wanted the wifes new boyfriend to be banned from the house. The wife countered the husband was abusive and wanted him banned instead. When I told them that I couldn't enforce anything without a police protection order, their vision of me changed. First, they saw me as a way to get even with each other. That never really changed, but instead they decided the fight through me.
The husband moved out, a boyfriend moved in, drugs and cigarettes were being smoked upstairs, and no one was paying rent. When I started the formal eviction process, the squatters got malicious and discovered they had access to the circuit breakers in the basement and passed the time turning my power off. One thing I learned very quickly during this process is that the police are very much not on your side. No matter how many times you call 911 because your power is being turned off and threats yelled through your door, they will refuse to respond (at least in Metro-Detroit). In fact, this happened three times before I had to move out of the while the courts proceeded with the eviction papers.
40 days, two destroyed walls and a destroyed refrigerator later, and they're out of the house and I've moved back in. With calm restored, I can look back at the long view of the experience and say this has been a positive adventure. Having gone through some of these experiences I can also share with you these tips for renting.
Step 1: The Application
This is a very important piece of paper. It's important because it's your first view of your potential tenants, and in the worst-case scenario it's your last view. If you ever start to file for eviction you need to know exactly where and how to tell the court to track down these people to collect your money. If you have to sue them and are forced to collect through the courts, you'll need to have their social security number. They will avoid you, they will hide, and they will not be happy when you have to resort to following them in your mothers car to find out where they live. Here are some tips:
Know your tenants - Require that every occupant over the age of 18 fills one out
Know your future tenants well - Require copies of drivers licenses or photo id's for every occupant over 18. This is incredibly important if you want to take them to court at a future date. It has their current legal address, and everything you could possibly need to file with the court
Know you can get paid - Copies of the last two pays stubs from one of the occupants current employers. The tenants mentioned in the introduction paid the move in fee, and nothing else. They got two free months out of the deal and invented a new game that involves screw drivers and my walls.
Get Paid - If you can, require that the tenants have banks that will automatically transfer their funds monthly. In some areas, like my part of Metro-Detroit, you'll have tenants who've never even had a checking account and this is not possible.
Be Thorough - Put all of these requirements in a checklist on the first page of the application. It's very easy to get excited about finding a tenant and forgetting one or more of these things. They're all very important, and it's worth having a checklist for you and an enumerated requirement for them.
Be picky - Be prepared to say no if they can't or won't meet any of these requirements. Just like teaching, it's better to be mean first and lenient later.
Step 2: The Lease
Make them accountable - Make sure every person over the age of 18 signs the lease. With the tenants in the introduction, only the husband signed the lease. When I started the eviction process I started a concurrent money settlement as well for the balance due. My suit listed both occupants as the defendants. The courts sent an officer to the house and hand delivered the summons to the wife who was home at the time. Unfortunately, to win a money settlement it is required that the defendant be personally handed their summons by an officer of the court. Since both husband and wife were on the summons, both were handed to the wife, but the husband was the only person responsible for the money due. I had to start all over for a money settlement. The wife destroyed the house when she moved out and it's hard to put responsibility on the husband. It was a mess.
Make them financially accountable - Make sure you have late fees. I like graduated late fees, in increments of $25. Filling with the court is expensive, and you'll want to recoup that cost. Even for a complaint.
Make the cost of entry expensive – The cost of moving in should be around three months if possible. They should have to pay the first months rent, the last months rent, and a security deposit of a months rent. It takes about two months to legally have someone forcefully evicted. This secures that you'll be paid for that time. It also ensure that you only receive applications from people who can pay and intend to. All of my mistakes stemmed from the fact that I required only the first month, and a security deposit of a half month that I was way too willing to split into payments.
Step 3: Collection and Eviction
Don't accept partial payments – If you do, you'll have a very hard time evicting. The court will see it as an agreement that they have the remainder of the month to pay off the rest.
Start early – On the fifth day of non-payment of rent, begin to evict. In my area, to evict you have a long process. The introductory story took approximately two months, of which I had to spend most of the time sleeping at my parents. First you have to give them a formal “demand for possession” which you get from the court, get it notarized, and have it delivered the the tenants. That gives them seven days to pay or move. After those seven days you can then file for an eviction hearing. It usually takes a week to two weeks to get a court date. After that court date, if you win, the tenants get another ten days to move or appeal. If they appeal add another wait for court dates and appeal time. On the tenth day of that, if they still haven't moved you go to the court and they send an officer to post a 24 eviction notice. The next day the officer comes and you have to remove the property while the bailiff watches. In some cities you're required to hire a specific company, approved by the government of course, and maybe even be forced to rent a dumpster. All of this at your expense in addition to the approximately $150 plus any lawyer fees if you're a Limited Liability Corp, LLC, that it cost to file for the eviction proceedings. If at any point in this process the tenants pays in full, you lose your right to evict.
Start Early – I'm going to reiterate this. Even if the tenants are good people, the best practice is to do everything formally, in writing, and through the court. People will take advantage of you. It's amazing the results you can get with just the court letter head, and it can be a good motivator for those people who are nice but never on time.
Step 4: The Rest
Don't let this scare you!
Yes, if done wrong being a landlord is a miserable experience. You're lied to regularly, cursed at aggressively, your life will probably be threatened at some point, and you'll feel like you are performing the least dignifying job in the world. Once you realize all of these, once you understand that this is a business, that people usually won't like you (sometimes hate you), that no matter how good of a renter they are on their last day they will usually screw you somehow... then you're in the clear. But most of all a good business process, similar if not exactly like the steps laid out above, can alleviate much of the headache. If you don't like some of my suggestions, adapt them, but have a standard process that is in writing or on a check list.
Leases, courts, late fees, and police officers are much like locks on windows. Windows can easily be broken into, but the lock isn't there to stop that. It's there to keep people honest. Not everyone is a good person (whatever that really means), but most people want to do good things, or the right things. Why not, you feel good afterwards. But if the incentives aren't set right, if you can't keep them accountable, if you don't know your legal rights and know how to enforce them, or if you make it too easy to get away with not being good, people will take you for a ride. Especially when money is involved.