Becoming a Landlord - Is it RIGHT for You? Part II
Okay, you've found and purchased rental property! Now what? Time to look for tenants.
Tenants are certainly out there. In the White Mountains of Arizona area, rental property is scarce with demand out-pacing supply. In a perfect world, though, there'd be all perfect tenants, but we know that this isn't a perfect world. So, you have to screen tenants. First, start by knowing The Law. The Fair Housing Act prohibits discrimination according to race or color, national origin, religion, sex, familial status, and handicap or disability. Observe these provisions dutifully.
The application process should involve background/credit checks. If you don't feel comfortable performing these yourself, LandLord411 is a really good resource. Alternatively, if you don't particularly want to hand-manage your rentals, locate a Property Management firm, such as Century 21 Sunshine Property Management to professionally manage your rental property for you.
But prior to interviewing tenants, know the discrimination laws and what questions you're permitted to ask the tenant. Don't rush through the tenant-selection process. Formally develop a set of criteria or standards to help you decide who would be a good tenant. And make absolutely certain applicants know what the standards are when they apply. These standards may include the number of occupants, rent price, pets, security deposits, who pays utilities, minimum income requirements, among others.
Income -- You can set a minimum. A common criterion is a gross income that equals at least 3.5 times the annual rent amount. You can require that other bills, such as contracted debt (rent, credit cards, etc.) not exceed a specified amount, but contracted debt can not include such things as utility bills, cable bills, etc. when doing the math.
Employment or income stability -- Lenders require at least two years in the same line of work to buy a home. You can require something similar.
Length of time at last residence -- Preferably at least two years at the last residence.
Evictions -- If the tenant has been evicted, you may not want him.
Home life -- You can take into consideration the length of time at the last residence, or complaints from previous landlords or neighbors.
Number of occupants
Number of vehicles
Smokers vs. non-smokers
Bad credit -- A tenant who does not pay someone else may not pay you either. Look for consistently late payments and collections.
Unverifiable information -- If you can't verify what the applicant has written on the rental application, do not rent to him.
Source: Jon Petrie, author of Landlord Secrets
Once you've found your tenants, you will need to execute a Lease Agreement. Make sure that the terms of the lease agreement conform to State guidelines. Here is an Arizona Sample Lease Agreement that you might consider using. Make sure that you collect enough rent security/pet damage/cleaning funds up front. You might be glad you did later on-- but be sure to check what are the reasonable rental charges for your particular area. You don't want to "price yourself out of the market". And make SURE you have a positive cash-flow. This is, after all, an investment that should pay returns.
To Be Continued - How Hard is This? Are You Right For the Job?
Read Part I