How to be a landlord

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:

1. Know your tenants - Require that every occupant over the age of 18 fills one out

2. 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

3. 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.

4. 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.

5. 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.

6. 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.

 

Comments

[absentee landlord]

The best solution is to hire a professional property management company. We have 2 houses managed by a company that takes care of all the 3 AM calls, if any. They also screen the tenants and have a lease document that has real teeth. They will not allow tenants to default more than one month or to have pets, smoke in the house, have more people living there, etc. They check up on them and the lease specifies the penalties for such things. They run credit checks and background checks and handle any evictions that may be necessary. They also have a cadre of contractors who do the maintenance work. So far,we've been making about 9% per year on our investment after expenses. That is phenomenal in today's economy. It will be less next year, though, because we have to put a new roof on one of the houses. We have had one tenant for two years and they are leased for one more year. The other house has new tenants, and we're a little nervous because it's not a family. It's a couple and a relative. But the property manager will be watching. The fee is really minimal (5% of rent/month) and well worth it.

[littledemas]

I have a couple of small apartment buildings in So Fl. and the background check is a MUST. I also run a credit check. I just recoup the cost with an application fee. I also get the big three up front. However, even if you do all the proper steps you can still have problems. I like being a landlord but I am also glad I don't live on the premises. I have been successful by renting to people that are in the same industry. In 4 unit complexes like the ones I have you need to rent to people who will get along,otherwise, you will have phone calls about how so and so is parked in my spot or left clothes in the laundry, etc.

[shortw]

How do you do a background check or credit check?

[littledemas]

Sorry I haven't had time to check in. I use the police department to do my background checks. I have to pay them a fee but the state police have a lot of information on people. I know this may sound un business like but if I get a bad vibe from someone I don't rent to them. The credit bureaus will allow you to run a credit check on someone for a fee.

[shortw]

Thank you for the tip.

[drk1t]

Oh boy, I think there is a little more to it than just this. I had some rental houses long enough to decide someone else ought to be doing this. It can be a rough, time consuming and if you aren't careful expensive business. On my list of things to watch. Move in's relatives and friends they allow to move in while renting Pets they move in Book keeping, expenses and payments, and don't forget taxes, depreciation/profits/keeping receipts etc. Normal wear and tear vs damage or unusual wear and tear. The payoff used to come when you sold the places, but with the housing market the way it is now I doubt that happens. And if it does you will owe taxes on the capital gains. Kids drawing on the walls, kids breaking things, kids being kids for some reason the parents think if a kid does it the landlord should understand and take the loss. Collecting the rent, maybe this should be number one on the list. It's amazing how many people won't pay until they get a notice to come to court and then they don't want to pay the court costs involved because they finally paid the rent and that ought to be enough. The best renters I found are the ones that rented only until they could buy a house. The worst were single moms, God they could have problems and it always wound up costing me money. Anyway the housing market was good enough I was able to dump them at a profit and settle up with Uncle Sam and put the money where it would make more with a lot less trouble and a lot less liability. There is a reason the landlords are the way they are, because the nice ones got eaten alive by the tenants. It's not easy telling a family with kids that are in love with that the cute new puppy that it's going to have to go, but if you don't you can count on 500-1000 dollars worth of damage, not intentional but it comes out of the landlord's pocket one way or the other. My favorite is watching the pizza delivery car pull so the renter can eat pizza as the renter watches their new big screen TV while explaining they don't have the money to pay this month's rent but doesn't know why. I had lots of good renters also, paid on time and when they moved not a lot of work needed to get the places ready to rent again. I would give the tenants a copy of the landlord/tenants law when they moved in so they would know their rights and also they would know mine. It can be a business or a charity. I would say most tenants have know idea how little of their rent is actually profit. And you renters, if you have to replace a light bulb it stays with the place, it isn't yours anymore!

[Stevie89]

Well.. l'm a tenet, and lived in many apartments. l've never had a decent landlord. IMO, landlords are greedy and it's simply the dollar. l'm Canadian, maybe l'm too socialized but l think everyone should be entitled too land.

[lukejduncan]

Well, firstly it is a business. It IS about the dollar. That said like any business the key is relationships. If you want good tenants to remain good tenants than you need to be a good landlord. In my situation, as an individual with an apartment in the same building I live in I wasn't exactly the completely removed, unaware, uncaring landlord. In fact, I tried very hard to be accommodating. My experience with tenants, is that many people feel similarly to you, but would take it to the extreme and decide that it becomes their obligation almost to screw their landlord. I've never had a tenant cleanup after they left, and most leave a lot of furniture, junk, empty beer bottles everywhere. I've had tenants purposely destroy every wall and throw beer all over the floor (same tenants who were evicted for never once paying rent after paying the move in costs), and I've had tenants threaten my life and come back to my house and try and break in (again same people). All of that in spite of being on call whenever anything was needed, making payment plans to accommodate unexpected life changes without charging late fees. Everyone takes advantages of these accommodations. Being a landlord, I think, is a lot like being a teacher. You need to be stern first, and then lenient later. And again, it was all about the dollar. I was a fulltime student paying my way through college on that income. When they stopped paying, I stopped being able to pay for school. It's a risk I took, knowingly, but it was an income based on an obligated entered into by the tenant willfully.

[wrenawild]

I noticed there was nothing in here about making sure you are responsible and on time to fix any and all home repair problems, major or minor. If the toilet spews black water at 3AM, or the basement is slowing flooding after months of rain, these are all a landlords problem to deal with promptly and properly, or else he/she SHOULDN'T be paid a dime. I know it's a tough job, but after months of living at our first apartment with a leaky, caving in roof with black mold growing on the ceiling, I LOVED not paying my landlord a dime, and it was perfectly legal! Despite the deteriorating conditions and health hazards, we still got twice a day viscous verbal harassments, as well as 15 minute, shake the house poundings on our door for the rent. It's really soured us on renting, if only there were a way to have landlords "apply" to rent to you. You could weed out all the money grubbing scumbags who in the end will threaten your life and then rent out your apartment after you move without fixing it to immigrants who are afraid to complain about the dangerous living conditions. So I guess my addition to this 'ible is to make sure when you rent that you live up to the commitment of keeping good people's lives up to a basic standard of living. Good luck.

[Treknology]

In step 1 the author makes reference to daily maintenance and upkeep, but I agree that a whole step should have been devoted to this responsibility. My biggest warning goes out to tenants: be very @#$%ing careful choosing someone with whom to share, lest you get left holding the financial baby.