As a landlord, the relationship you have with your tenants can be affected by different influences. As with most of the areas of our life, we have the ability to mold some of the influences our tenants react to.
First lets look at the things which are hard, or impossible, to change.
(A) Irresponsible people- People, who have a history of not paying rent on time, will probably be the same way with you. It's not always your tenants fault for being a little short some rent on the first, but if it's an every month problem, then how you react can make the difference. I have made deals where a tenant pays halve the rent every two weeks, but I don't advise it. Once you give into a tenant, they usually will push you past your giving point.
(B) People who overspend- The ability to pay rent is in direct proportion to the tenants income. If you rent to a person who doesn't make enough money you will have trouble.
(C) Fixed income- Some people receive their income from a fixed source. These sources mail the tenants funds, so they have a tendency to fluctuate when they will arrive. While most of these tenants will pay their rent, they can be late regularly. How you react to this depends on you, and how well you can work around it.
(D) Dirty People- Dirty people tend to live in dirty places. When you meet a possible tenant, you will have to decide if they seem "clean" to you.
(E) Family and Friends- If you want to keep peace with your family and friendly friends, never rent to them. As with all business operations, your income property is a business and must be ran as such. The emotions that could come into play with family and friends as normal day-to-day problems arise could affect how your business succeeds. I've seen this happen and know the terrible out come. Our policy is the same to all; No family, and no friends, period, rent from us!
How many renters from these groups you rent to on purpose, is up to you. We all have different levels of stress and risk, so someone I won't rent to, may be acceptable to you, or the other way around.
The Application- One of the things that my friends and I found we had in common when we first started our new income property managing experience, was the fear of the unknown. We all have visions of how great something is when it works perfect, so once we stepped into that picture, we wanted to hurry and make it work fast! Don't hurry!! My group has all been there, and we all know now that it works better if we take our time, and do all the steps, the right way. This is where taking applications can make the difference in your rental experience.
People move for a variety of reasons. If you know the reason, you will be a step ahead of the game. You don't have to visit, or even talk to the last place they lived. Just include the question, "Why are you moving?" on the application. The answers you get will tell you a lot.
How much household income there is will quickly tell you if they can afford your property. If your rent is more than 25% of their gross income, it could be trouble. You should verify their income and employment with the employer on the application. You also have the right to ask for a credit check, but it usually doesn't have to go that far.
How many people will be living there? A good policy is no more than 2 people to a bedroom. Doing this will give you good averages on utilities, and save a lot of damage to your property.
Do they have pets? Our policy depends on the pet. It's easier to rent if you allow pets, but be picky about which type, because it will cost you if it's the wrong pet. My experience is that cats are usually the best pets, where large dogs are the worst, but some would disagree. Always charge a separate pet deposit based on the pet you allow. (Example: Cats, I charge $100.00, dogs, $300.00) Never rent to someone with a pet you feel uncomfortable with.
Find out how long they plan on staying. It could come down to two choices, and one plans on staying at least a year (lease) while the other doesn't know, or just a few months. Always take the year lease. The longer a tenant stays the better. (Families tend to stay longer than single people or child-less couples)
What are their hobbies? If their hobbies interfere with other tenants or neighbors, you will hear about it. Some areas have strict zoning codes and issue fines for violations, which you will have to pay. If any application falls in this category, and you do rent to them, make sure they know and understand your policies, and make sure they abide by these policies!
A good application can filter out a lot of future trouble. Most people will not lie on an application, but if they do, that's ground for eviction. If the problem can't be fixed, you can get rid of it.
Now you know whom you don't want to rent to, and how to pick the one you want. You find a good tenant, so now you want to keep them good.
It's never good to become close friends with your tenants, but you do need to know them. Keep a list by your phone with each tenants name, their spouse, their children, and even their pets if you can. When you talk to your tenants, use their first name, and refer to their families in "ice braking" chitchat. We are salesmen, and should always use sales politeness in all our conversations with tenants.
When a tenant tells you of a needed repair, fix it as soon as possible. Let your tenant know an approximate time for the repair, and inform them of any change of plans. You will have to decide what repairs are and what improvements are, though. Some tenants believe a spot of pealing paint needs fixed right now, but will let a leaking faucet go for months! It's in your best interest to fix all problems as they arrive.
It's also good to do preventive maintenance on your properties. Have them sprayed for insect control as often as needed. Have the heating and cooling systems regularly "tuned-up". If there is a well, change the filters often, and use chemicals to treat the septic or drains. Treat your maintenance as if you lived there.
If you treat your tenants politely and keep their home working properly, they will stay longer and pay their rent on time, but if you don't, the opposite will happen.
Ways to encourage on time rent payments. Make rent day, maintenance day. Filters on the well or furnace need to be changed. Make these changes on rent day! After a month or two, your tenants will know your coming and have their rent ready. Since this is near the end of their discount time frame, it is good for your tenants and you.
Never hesitate to start eviction paperwork on the day you state in your lease. If you allow a tenant to slide once, they will think they can slide whenever they want to. Evaluate every situation individually, but be firm and regular with your response.
I know a man who owns a 32-unit apartment building. He is a very kind and warm-hearted person, who goes out of his way to help his tenants. (This isn't me) Some of his tenants regularly took advantage of his kindness, and were always late, or didn't even pay their rent every month. Eventually this man had financial problems, and had to come down hard on his tenants where rent was concerned. (He actually hired a manager to do this for him) After the manager evicted a couple of tenants, the rest of the "bad" bunch suddenly had their rent on time!
Don't let the fear of getting your rent stop you from buying income property. I've done this a long time and know that most tenants are good people and will pay their rent on time, if you are a good landlord!
Your attitude and the way you present yourself around your tenants can play a big part on how they respond to you. Always be polite in your conversations, and never talk down to any tenant. If you have a new Porsche, and an average car, always drive your average car when you visit your tenants. People think that because you own income property, you're rich! They have no way of knowing that your property depends on their rent, unless you drop little hints to this point. Try to relate to your tenant's standard of life, and, without complaining, share little problems you have in your life, to show them you are human too. Never be a know-it-all and listen to advice when they offer it, even when you know better. By being more like your tenants, when you are around them, the more responsible they will feel toward you.
Use the discount method on your lease. Figure out how much rent you want or need, then add $50.00. (This is an example amount, you can use any amount you want) When you write your lease, and advertisement, show a discount if the rent is paid by a certain date. If they pay after this date, then they pay the full-advertised rate, $50.00 more. This time frame will be your discount time frame, and you still can charge a late fee, ($5.00 a day is good) from the last day of the discount frame up to termination date. The discount gets the attention of future tenants who always pay on time, and the late fee encourages all the others.
Other possibilities to have income from your properties! Your total costs, including taxes and insurance, for this property is about $990.00 a month, giving you a $110.00 positive cash flow every month, plus the $2000.00 up front. If and when they do cash out the option, you get another $10,000.00, plus any difference in the pay-off amount. If they don't or can't cash out the option, you repeat the whole process again.
The best part of this arrangement is your tenant is responsible for all maintenance and most repairs. (The lease will have to specify which repairs you will help with during this option period. Usually roofs, septic or any other major structural needs. Never cosmetic, or comfort.) In most cases, you won't ever here from your tenant. They pay their rent on time, and treat the property as their own, because in their mind, it will be there own in a couple of years.
At the end of their option period, if they can't cash out the property, but they were good tenants and you want them to stay, you can sell them a new option with a higher asking price. (After two years, $115,000.00, for example) The price you charge them for the option is up to you, but the rent credit they acquired the first two years should not be carried over to the new lease. If they were super good tenants that you trust and fill comfortable with, then you may want to try the next idea!
(B)Contract sales are very easy and effective! With the help of a title agency, and or attorney, you can finance your property to whoever you want. Let's use the tenant in the last section, for example. At the end of two years they can't get conventional financing for some reason. You could contract the property for them. You will get a good cash flow every month for the life of the contract, or a high lump sum payment if they find refinancing sometime in the future. Some of the best things are, you won't be responsible for any part of the property, including repairs, taxes, or insurance. The only thing you have to do is make sure all payments are made to the escrow account. If these payments are not made, you start foreclosure paperwork, just like a bank.
Another benefit to contract sales is the right to sell your contract to other investors. Since this is usually a discount sale, you probably will want to wait a few years before you approach someone with the idea. (Don't be surprised if they approach you) Do the math, and figure out how much money it will take to make the profit you want or need.
(C)Land leasing works best with commercial property, but can work well with larger residential properties also, such as 4-plexes, triplexes, duplexes, and especially mobile homes.
The idea is to sell the improvements on the property and retain ownership of the land. You then lease the land to the owners of the property for a specific period of time, such as 30 years. Here's an example to help make this easier to explain the process.
A person owns a commercial lot with four 4-plexes on it, and wants to sell them all for $500,000.00, which the property will appraise for. After looking over the situation, this person decides they could get a better amount with continued income if they subdivide the property and sell each 4-plex individually with a lease on the land itself. The person hires an attorney and gets the land subdivided. Then they sell each 4-plex for $130,000.00, with a 30-year lease on the land for $200.00 a month! After 30 years the total property we be there�s, or their heir's, again!
The biggest question you probably have about this is who would buy a building when they will not own it in 30 years? From a business point of view, this is a good investment, for income and tax reasons. One of the 4-plexes grosses $3200.00 a month from rent. When we add up the mortgage of $1000.00, the land lease of $200.00, taxes, about $100.00, and insurance of about $100.00, we have a total of $1400.00 a month.
That leaves a cash flow of $1800.00 a month! Take out maintenance and vacancies, you still could have a positive cash flow over $1000.00 a month! Then there's the added tax brakes at the end of the year. This could also work, very well for an owner occupant who needs a place to start off with, till they can find the home of their dreams.
The things you need to check on before trying a deal like this, is first, the zoning codes for the property in question. Not all codes allow subdividing, but a good attorney can help you a lot to get the changes you need to subdivide in some cases. Second, the cash flow of the property has to be high enough to support each division. Third, the appraised value of each unit individually. Have your finance plan approved by a mortgage broker, or bank, before you start the land lease portion of this idea. (If someone is willing to pay cash for your subdivided improvements, then mortgage companies don't matter.)
This plan looks out for the future like no other plan around. With the way property values are going up, a piece of bare land worth $50,000.00 today could easily be worth $1,000,000.00 in 30 years!
Mobile Homes I know a person who was given two burnt mobile homes for nothing. This person took the two homes and spent about $3000.00 to repair them. They then placed the mobiles in a mobile park and rented them for $750.00 a month. After a few months, the tenants that were living there bought the mobiles, on personal contract, from this person. They made over $60,000.00 in a five year time frame, with no rental headaches!
Be on the lookout for distressed mobiles, and you to could find a great money making opportunity, with a little work.
Please check your local tenant laws before trying any rental methods described above. Each state has different laws that must be followed in all aspects of income property. Your local library can help you find the publications you need.
(A) Lease option your property. Advertise your property for lease with option to buy in a given time frame. Example: You have a property, (4-plex or smaller is best) that you paid $100,000.00 for. Put this property up for sale at a price of $110,000.00, and that you will take a lease option. When someone responds, take $2000.00 option money, with a lease term of two years. The monthly rent would be $1100.00, of which a specified amount (50% is good) would go toward the down payment.
I've added this part on mobile homes, because they are one of the greatest values in the rental market today! These homes can be bought for next to nothing, and with a little work, rented for as much as an expensive house or apartment.