The Four Basic Steps to Renting
Experience from a Family Owned Rental Business
My family has been in the rental business for almost 15 years, no we aren’t millionaires but
we have a steady stream of passive income that helps maintain and grow our business. In this article I want to share with you the process that has been working for us and how you
could benefit from it. We will go over the basics on how to find tenants, minimize downtime (i.e. vacancies), and some tools that have helped us along the way.
1. Market Research:
Know Your Assets:
This may seem obvious but some people tend to overlook this and that is to gather all the essential information about your property. Anything that may concern the tenant should concern you. Make sure you gather all the details such as, square footage, address, number of bed rooms, number of bathrooms, garage, parking space, central cooling, HOA fees, average utility costs, location, mailbox number, or any other unique details. Keep this information handy as you will need it when you do your market research, and add posting.
Know Your Market:
We look at three things 1. a macro perspective of the market, 2. the location of the property, and 3. a micro perspective of the market.
- Macro Perspective: You can generally gather this information by listening to the news, reading the paper, or even through your co-workers. However, since the advent of the internet you can now use sites like Zillow.com to look back at past and current data of the housing market. Having a good understanding of the housing market from a macro perspective is very important and can make a big difference whether to buy, sell, or hold your investment. In an ideal scenario you buy as many properties as you can when the housing prices are at their lowest point. This ensures the maximum return and the greatest chance at holding your property for the long run.
- Location: I think this is already over stressed but yes, location can make a big difference on your return when renting. Don’t compare a house that’s in San Diego with a house that’s in Tennessee. Pick something comparable within a 10 to 20 mile radius or within the same city limits. Also, take a look at the local job market in the area, school districts, freeway access, and weather. The more information you can get about the location, the greater the likelihood you can use these key attributes to formulate a list on key traits to look for when looking at other areas to buy.
- Micro Perspective: Just use Craigslist.com and start searching for properties to rent in your area. You could use other sites like Redfin.com or Zillow.com but personally I like Craigslist simple website. Once you have a good feel for the overall hi and low prices, start to narrow your search down with properties that best match your own. This is a great tactic in getting a quick glance at what everyone else is doing and where you should price your rent. To minimize vacancies we generally price our properties near the low end just enough to make a return between 7 and 9%. Remember you make money on the purchase not on the sale so, if you’ve done your research on the front end, obtaining an ROI between 7 and 9% should not be unrealistic.
Being everywhere that’s your goal, the more eyeballs you can attract the greater the chances will be in finding the right tenant. Postlets.com does just that, without having to sign up and create multiple accounts on various websites. Sign up on Postlets.com create an account and create a new listing, once you have completed your first listing you will be given an option to syndicate on other sites such as Zillow, Yahoo, HotPads, Enormo, Oodle, Backpage, DotHomes, Vast, Trulia, ByOwnerMLS, and others. You will notice that they don’t include automatic syndication for Craigslist but once you have the post made on Postlets, they give you an option to paste HTML code into Craigslist to streamline the process. You don’t need to know anything about HTML or coding, just be good at filling out forms and reading instructions.
Filter Your Contacts:
If you have done everything right on Postlets, you will get a torrent of calls and emails that will absorb most of your time. You need to filter out and separate your contacts so you don’t get inundated with calls on your cellphone. The best way to do this is to sign up with Google to get a free VoIP service called Google Voice, this allows you to create a new telephone number. The number allows you to forward calls to other devices such as cellphones, land lines, or directly to your voice mail. Post this number on your adds and address the calls at a time that works for you. One last thing, you will need to create a new email account with Google before you can use Google Voice. This isn’t a big deal since Gmail comes with a lot of useful free services. Go ahead and use this email on your adds, to keep things more organized and separated.
Ability to Pay:
After you have shown the place, passed out applications, picked up applications, ran credit checks, contacted employers, and current landlords what it all comes down to is the ability to pay the rent as it comes due. I’m not going to get into the details about the various forms I use to collect this information but it’s best to use official forms (i.e. California Association of Realtors or California Apartment Association Approved Forms). The ability to pay can generally be determined when running the credit report and verifying employment history. Positive things to look for are, scores between 700-800, consistent employment record, low leveraged expenses, and a low liability ratio to help ensure sufficient income to pay rent. If this sounds like accounting well… it is, and better to start thinking like this then dealing with an eviction. One last thing, make sure you process the applications and gather the information quickly, if you don’t it could cost you in losing out a good tenant. Ideally, one to two days is great when getting back with potential tenants, three to four is more realistic, but a week is really pushing it so try to keep the evaluation process moving along smoothly.
Once you have selected your top three or five tenants, give a call to the first pick and inform them that they have been approved. However, this does not guarantee a closed deal, the saying in our house is, there’s no done deal until the moneys in the bank and even then that doesn’t guarantee anything. Let me explain, we had found an excellent tenant, had everything setup for the couple to move in, they paid the holding deposit, signed the lease agreement, and were about to move in when we received a call informing us that they could not rent from us due to job relocation issues. Legally, we could have kept the whole holding deposit but understood the circumstances, and worked out an agreement with them to settle the issue. This story shows the uncertainty of the rental business and how, even after signing the lease agreement and receiving a holding deposit does not guarantee a closed deal.
Move in Walkthrough:
We generally do this on the first day of the move in and if not, rescheduled the walkthrough within a weeks’ time. It’s a pretty straight forward process if you have the official documentation, such as, a California Apartment Association Approved form that covers just about everything. One thing we do a little different is give time for the current tenant to find anything we missed from the initial inspection. This is great for one of two reasons, first, you have a second set of eyes checking out the unit and using the appliances and secondly, it helps in determining the itemized security deposit deductions for the previous tenants.
Keep in Contact:
Have a good relationship with your tenants by giving them a direct line to contact you. This could be anything from a cell number, email, or website but it’s generally best to give a cellphone number. Most people use cellphones that have texting capabilities so, we typically text back and forth with our tenants to confirm meeting times and places using Google Voice. For bigger key items such as maintenance and repair issues we email using our separate Gmail account for property rentals, and for more urgent matters we give them our personal cellphone. All in all, just be a good listener and be patient. Again, keep in touch by text, email, or phone using Google’s free services and be a proactive listener.