Property Management Kit For Dummies

Property

Management Kit

FOR

DUMmIES

‰

2ND EDITION

by Robert Griswold

Host of radio’s Real Estate Today! With Robert Griswold

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Property

Management Kit

FOR

DUMmIES

‰

2ND EDITION

by Robert Griswold

Host of radio’s Real Estate Today! With Robert Griswold

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Property Management Kit For Dummies

, 2nd Edition

Published by

Wiley Publishing, Inc.

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Hoboken, NJ 07030-5774

www.wiley.com

Published by Wiley Publishing, Inc., Indianapolis, Indiana

Published simultaneously in Canada

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About the Author

Robert S. Griswold is the coauthor of Real Estate Investing For Dummies with

Eric Tyson. He has earned a bachelor’s degree and two master’s degrees in

real estate and related fields from the University of Southern California’s

Marshall School of Business. His professional real estate management and

investing credentials include the CRE (Counselor of Real Estate), the CPM

(Certified Property Manager), the ARM (Accredited Residential Manager), the

CCIM (Certified Commercial Investment Member), PCAM (Professional

Community Association Manager), and the GRI (Graduate, Realtor Institute).

Robert is a hands-on property manager with more than 30 years of practical

experience, having managed more than 800 properties representing more

than 45,000 rental units. He owns and runs Griswold Real Estate Management,

Inc., a property management firm with offices in southern California and

southern Nevada.

Since 1995, Robert has been the Real Estate Expert for NBC San Diego, a

network-owned and number-one-rated station. Every Saturday, he provides

impromptu answers to viewers’ real estate questions live on the air during

NBC News this Weekend.

Once a week for 14 years, Robert hosted a live, call-in real estate news and

information talk show called Real Estate Today! with Robert Griswold, heard

throughout southern California on Clear Channel’s AM 600 KOGO radio and

around the world on the show’s Web site at www.retodayradio.com. He

has been twice named the #1 Radio or Television Real Estate Journalist in the

Country by the National Association of Real Estate Editors in their Annual

National Journalism competition. The first award was for Real Estate Today!

with Robert Griswold, and the second was for his work for NBC News.

Robert is the lead columnist for the syndicated Rental Roundtable landlord-

tenant Q & A column at www.rentalroundtable.com, which is also fea-

tured in the San Diego Union-Tribune and the San Francisco Chronicle. He also

writes a nationally syndicated column, Rental Forum, at www.inman.com.

He’s a nationally recognized real estate litigation expert, having been

retained on more than 1,000 real estate legal matters — as well as serving

more than 150 times as a court-appointed receiver, referee, or bankruptcy

custodian.

Robert is a member of the National Faculty of IREM and a National Apartment

Association (NAA) and California Department of Real Estate Certified

Instructor. He’s a licensed California and Nevada real estate Broker, a

Realtor, and an active member of NAA and his local apartment association,

the San Diego County Apartment Association. Since 2005, he has served as a

Planning Commissioner in the City of San Diego.

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In his spare time (?!), he enjoys travel (especially cruising!), watching his

children excel in soccer, and participating in family activities with his wife,

Carol, and their four teenagers, Sheri, Stephen, Kimberly, and Michael. Above

all, he tries to retain his sense of humor and truly enjoy what he’s doing!

Dedication

I dedicate this book to my father, Westcott Griswold, who’s greatly admired by

all who know him. I also want to thank my best friend and wife, Carol, for her

25+ years of love, support, patience, and persistence in attempting to bring the

proper balance to my life. Of course, life’s always exciting and has real meaning

thanks to my four great teenagers — Sheri, Stephen, Kimberly, and Michael.

I also want to express my appreciation to my mom, Carol, for her unconditional

love and infinite encouragement. Most of all, I want to praise and thank God for

the wonderful gifts and incredible opportunities He has given me.

Author’s Acknowledgments

This book was made possible through the efforts of some very fine people

at Wiley Publishing, Inc. Mark Butler initially believed in my concept for the

first edition of Property Management For Dummies. Lindsay Lefevere was very

supportive of my efforts to include a CD-ROM with forms for the second

edition.

My Project Editor, Chad Sievers, made the rewrite fairly painless with some

great suggestions, which have led to a phenomenal resource book for rental

owners and property managers. My thanks also go to Copy Editor Jennifer

Tucci for a masterful job. I’d also like to thank technical editor, Joe DeCarlo,

who helped make sure that the information was accurate and that my advice

hit the mark.

My interest in real estate can be traced back to my father and mentor,

attorney Westcott Griswold, who advised me to excel in real estate, not law;

and my friend and first real estate professor at USC, Dr. Rocky Tarantello.

Thank you!

I was blessed to formally begin my real estate management career working

with two of the most savvy, knowledgeable, and ethical men in real estate —

thank you, Rod Stone and George Fermanian, for starting me on the right

track. In my property management days, I’ve met many fine people, and two

of the best are my friends property manager Wade Walker and attorney

Steve Kellman. I also want to thank attorney Kathy Belville-Ilaqua for her

review and sage advice on fair housing materials covered in the new edition.

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I’ll always be thankful to Carl Larsen, Homes Editor of the San Diego Union-

Tribune, who started me in my writing career when he gave me a shot with

the first Rental Roundtable column while his lovely wife, Sharon Larsen,

assisted in creating my original book proposal.

My heartfelt appreciation also goes to the late syndicated columnist and

newsletter author Bob Bruss, who offered encouragement and invaluable

advice for my first two books and who reinforced the importance of sharing

my personal experiences to illustrate my points.

Finally, I’d like to thank all of my NBC news viewers, Rental Roundtable and

Rental Forum readers, and radio listeners who’ve educated me with their

interesting and thought-provoking questions on literally every aspect of real

estate management.

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Publisher’s Acknowledgments

We’re proud of this book; please send us your comments through our Dummies online registration

form located at www.dummies.com/register/.

Some of the people who helped bring this book to market include the following:

Acquisitions, Editorial, and

Media Development

Project Editor: Chad R. Sievers

(Previous Edition: Elizabeth Kuball)

Acquisitions Editor: Lindsay Lefevere

Copy Editor: Jennifer Tucci

Editorial Program Coordinator:

Erin Calligan Mooney

Technical Editor: Joe DeCarlo

Media Development Producer: Josh Frank,

Jenny Swisher

Editorial Manager: Michelle Hacker

Editorial Assistants: Joe Niesen,

Jennette ElNaggar, David Lutton

Cover Photos: Ablestock.com

Cartoons: Rich Tennant (www.the5thwave.com)

Composition Services

Project Coordinator: Katie Key

Layout and Graphics: Reuben W. Davis,

Stephanie D. Jumper, Christin Swinford,

Christine Williams

Proofreaders: John Greenough, Penny L. Stuart

Indexer: Sherry Massey

Publishing and Editorial for Consumer Dummies

Diane Graves Steele, Vice President and Publisher, Consumer Dummies

Joyce Pepple, Acquisitions Director, Consumer Dummies

Kristin A. Cocks, Product Development Director, Consumer Dummies

Michael Spring, Vice President and Publisher, Travel

Kelly Regan, Editorial Director, Travel

Publishing for Technology Dummies

Andy Cummings, Vice President and Publisher, Dummies Technology/General User

Composition Services

Gerry Fahey, Vice President of Production Services

Debbie Stailey, Director of Composition Services

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Contents at a Glance

Introduction ................................................................ 1

Part I: So You Want to Be a Landlord? .......................... 7

Chapter 1: Property Management 101 ............................................................................9

Chapter 2: Do You Have What It Takes to Manage Your Own Rental Property? .....21

Chapter 3: Managing Your Property Yourself or Hiring a Pro ...................................33

Chapter 4: Taking Over the Proper ty ............................................................................47

Part II: Renting Your Property .................................... 57

Chapter 5: Getting Your Rental Property Ready for Prospective Tenants ..............59

Chapter 6: Rent, Security Deposits, and Rental Contracts:

The Big Three of Property Management .................................................................... 75

Chapter 7: FOR RENT: Generating Interest in Your Rental .........................................91

Chapter 8: Handling Prospects When They Come A’Calling ....................................117

Chapter 9: Strutting Your Property’s Stuff: Making Your Property Stick Out .......141

Chapter 10: Eenie, Meenie, Miney, Mo: Selecting Your Tenants ..............................161

Part III: The Brass Tacks of Managing Rentals ........... 189

Chapter 11: Moving In the Tenants .............................................................................191

Chapter 12: Collecting and Increasing Rent ...............................................................213

Chapter 13: Keeping the Good Tenants — and Your Sanity .................................... 229

Chapter 14: Dealing with Problem Tenants ................................................................239

Chapter 15: Moving Out the Tenants ..........................................................................253

Part IV: Techniques and Tools

for Managing the Property ....................................... 269

Chapter 16: Working with Employees and Contractors............................................271

Chapter 17: Maintaining the Property ........................................................................283

Chapter 18: Keeping Safety and Security in Mind .....................................................297

Part V: Money, Money, Money!................................. 311

Chapter 19: Two Necessities of Property Management: Insurance and Taxes .....313

Chapter 20: Financial Management and Recordkeeping ...........................................325

Chapter 21: Finding New Ways to Increase Your Cash Flow:

Only for the Daring ...................................................................................................... 335

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Part VI: The Part of Tens .......................................... 353

Chapter 22: Ten Reasons to Become a Rental Property Owner ..............................355

Chapter 23: Ten Ways to Rent Your Vacancy ............................................................ 359

Appendix A: On the CD ............................................. 363

Appendix B: State Statutes

for Landlord-Tenant Laws ......................................... 371

Index ...................................................................... 393

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Table of Contents

Introduction ................................................................. 1

About This Book .............................................................................................. 1

Conventions Used in This Book .....................................................................2

What You’re Not to Read ................................................................................2

Foolish Assumptions ....................................................................................... 2

How This Book Is Organized .......................................................................... 3

Part I: So You Want to Be a Landlord? ................................................ 3

Part II: Renting Your Property ..............................................................4

Part III: The Brass Tacks of Managing Rentals ................................... 4

Part IV: Techniques and Tools for Managing the Property ..............4

Part V: Money, Money, Money! ............................................................5

Part VI: The Part of Tens ....................................................................... 5

Icons Used in This Book ................................................................................. 5

Where to Go from Here ...................................................................................6

Part I: So You Want to Be a Landlord? ........................... 7

Chapter 1: Property Management 101 . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Understanding What Property Management Really Is ..............................10

Considering the pros ........................................................................... 10

Confronting the icky parts ..................................................................11

Eyeing the Types of Real Estate Available .................................................12

Renting Your Property ..................................................................................13

Preparing the property .......................................................................14

Knowing how much to charge ............................................................ 15

Arousing prospects’ interest ..............................................................16

Turning prospects’ interest into property visits .............................16

Picking your tenants and signing the deal ........................................17

Getting Your Hands Dirty: Managing the Property ................................... 17

Moving tenants in and out ..................................................................18

Collecting rent and keeping the good tenants ................................. 18

Handling troublesome tenants ........................................................... 19

Maintaining the property ....................................................................19

Protecting your investment ................................................................ 20

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Property Management Kit For Dummies, 2nd Edition

Chapter 2: Do You Have What It Takes to Manage

Your Own Rental Property? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Understanding That Managing Rental Property Is a People Business ...22

Identifying the Types of Real Estate Owners ............................................. 22

The inadvertent rental property owner ............................................ 22

The long-term investment rental property owner ...........................23

Recognizing the Advantages of Owning Rental Property ......................... 24

Eyeing the Unique Characteristics of a Good Manager ............................ 25

Realizing that good management makes a difference ..................... 26

Separating your personal style from sound management .............. 27

Managing your time ............................................................................. 28

Delegating management activities ..................................................... 28

Knowing that your style is unique .....................................................30

Being Honest with Yourself about Your Skills and Experience ............... 30

Chapter 3: Managing Your Property Yourself or Hiring a Pro . . . . . . .33

Managing Your Rental Yourself ................................................................... 33

Recognizing the advantages of self-management ............................ 34

Paying attention to the drawbacks .................................................... 34

Managing your property from a distance .........................................35

Exploring Professional Management ........................................................... 36

Eyeing the pros and cons of using a pro ........................................... 36

Understanding what a property manager does ...............................38

Telling the good from the bad ............................................................39

Compensating your property manager ............................................. 42

Making sense of management agreements ....................................... 44

Being aware of the tax consequences ...............................................45

Chapter 4: Taking Over the Proper ty. . . . . . . . . . . . . . . . . . . . . . . . . . . . .47

Knowing What to Get Upfront ...................................................................... 47

A list of personal property included in the sale .............................. 48

A copy of all tenant files ...................................................................... 49

A seller-verified rent roll and list of all tenant

security deposits .............................................................................. 49

A copy of all required governmental licenses and permits............50

A copy of all the latest utility bills ..................................................... 50

A copy of every service agreement or contract...............................51

A copy of the seller’s current insurance policy ............................... 51

Working with the Current Tenants during the Transition ....................... 52

Meeting with the tenants in person ...................................................53

Inspecting the rental unit .................................................................... 53

Using a new lease or rental agreement .............................................54

Evaluating the current rent ................................................................ 55

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Table of Contents

Part II: Renting Your Property .................................... 57

Chapter 5: Getting Your Rental Property Ready

for Prospective Tenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59

Coming Up with a Plan to Handle Vacancies ............................................. 59

Considering renovations and upgrades ............................................60

Paying attention to the exterior and common areas.......................62

Making sure the interior is up to snuff .............................................. 63

Preparing Your Rental Unit the Right Way ................................................. 66

General cleaning...................................................................................66

Maintenance and repairs .................................................................... 67

Painting .................................................................................................69

Final cleaning ........................................................................................70

Carpet or floor covering cleaning ...................................................... 71

Inspecting Safety Items ................................................................................. 72

Using Outside Contractors ........................................................................... 73

Chapter 6: Rent, Security Deposits, and Rental Contracts:

The Big Three of Property Management . . . . . . . . . . . . . . . . . . . . . . . . .75

Setting the Rent .............................................................................................. 75

Examining the return on your investment ........................................ 76

Conducting a market analysis of rents in your area........................77

Coming Up with a Fair Security Deposit ..................................................... 82

Figuring what you can legally charge ................................................82

Keeping security deposits separate from your other funds .......... 83

Avoiding nonrefundable deposits......................................................84

Paying interest on security deposits ................................................. 85

Increasing deposits .............................................................................. 86

Choosing the Type of RentalContract You Want ......................................86

Contemplating a lease ......................................................................... 86

Eyeing a periodic rental agreement ................................................... 87

Getting your contract in writing ........................................................ 88

Chapter 7: FOR RENT: Generating Interest in Your Rental . . . . . . . . . .91

Developing a Marketing Plan ........................................................................ 91

Determining your target market ........................................................92

Thinking about what your renters stand to gain

from your property .......................................................................... 93

Understanding the Importance of Good Advertising ................................ 93

Eyeing the different approaches ........................................................94

Knowing which approach gives you the most bang

for your buck .................................................................................... 95

Getting your property to rent itself ................................................... 97

Being Aware of Fair Housing Laws .............................................................. 97

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Property Management Kit For Dummies, 2nd Edition

xii

Analyzing Your Advertising Options ........................................................... 99

Talking the talk: Word-of-mouth referrals ...................................... 100

Showcasing your site: Property signs ............................................. 101

Broadening your horizons: The Internet ........................................103

Reading all about it: Newspapers ....................................................105

Papering the neighborhood: Flyers .................................................109

Focusing on rental publications.......................................................112

Creating chat: Community bulletin boards .................................... 113

Going where the jobs are: Local employers ...................................113

Meandering through other tactics to try ........................................ 114

Chapter 8: Handling Prospects When They Come A’Calling . . . . . . .117

Understanding Why First Impressions Are Important ............................ 117

Making the Most of Technology ................................................................ 119

Using your phone to your advantage .............................................. 119

Knowing which devices you need ...................................................122

Preparing for Rental Inquiry Phone Calls ................................................. 122

Having the basic tools ready ............................................................ 123

Answering the phone ........................................................................128

Providing and obtaining the basic info ........................................... 130

Selling the prospect on your property ............................................132

Prequalifying the prospect over the phone ...................................132

Handling phone objections ............................................................... 134

Converting phone calls to rental showings .................................... 135

Planning Ahead for Open Houses and Walk-Throughs ...........................137

Holding an open house .....................................................................137

Scheduling individual appointments ...............................................138

Providing directions to the property ..............................................139

Chapter 9: Strutting Your Property’s Stuff:

Making Your Property Stick Out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .141

Showing Your Rental Unit ........................................................................... 141

Showing a vacant rental .................................................................... 142

Showing an occupied rental ............................................................. 143

Taking the First Steps to Get the Renter Interested ................................ 144

Prequalifying your prospect during the rental showing ............... 145

Resolving your prospect’s objections ............................................. 145

Convincing your prospect ................................................................ 146

Inviting your prospect to sign on ....................................................147

Having your prospect complete a rental application ...................147

Holding your prospect’s deposit ..................................................... 149

Developing priority waiting lists ...................................................... 151

Handling Mandatory Disclosures and Environmental Issues ................ 152

Lead-based paint ................................................................................ 152

Asbestos ..............................................................................................155

Radon ..................................................................................................157

Sexual offenders .................................................................................159

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xiii

Table of Contents

Chapter 10: Eenie, Meenie, Miney, Mo: Selecting Your Tenants . . .161

Understanding the Importance of Screening ........................................... 162

Establishing Tenant Selection Criteria .....................................................162

Why having criteria is important .....................................................163

How to create your criteria ..............................................................164

Verifying Rental Applications .................................................................... 165

Confirming identity ............................................................................ 165

Going over occupancy guidelines ....................................................166

Investigating rental history ..............................................................167

Validating employment and income ................................................168

Reviewing credit history ................................................................... 169

Checking criminal history .................................................................173

Talking with all personal references ............................................... 175

Dealing with guarantors ....................................................................175

Making your final decision ................................................................ 177

Notifying the Applicant of Your Decision ................................................. 178

Avoiding Housing Discrimination Complaints .........................................180

The ins and outs of Fair Housing .....................................................180

Steering and chilling ..........................................................................182

Children ...............................................................................................183

Reasonable accommodations .......................................................... 184

Reasonable modifications ................................................................. 185

Companion or service animals ......................................................... 186

Americans with Disabilities Act ....................................................... 187

Sexual harassment .............................................................................188

Part III: The Brass Tacks of Managing Rentals ........... 189

Chapter 11: Moving In the Tenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . .191

Establishing the Move-In Date ................................................................... 192

Meeting with a Tenant Prior to Move-In ................................................... 193

Covering the rules with your new tenant .......................................193

Reviewing and signing documents ..................................................196

Collecting the money from your tenant .......................................... 203

Inspecting the property with your tenant before move-in ...........204

Giving your tenant an informational letter prior to move-in........207

Distributing the keys to your tenant ............................................... 210

Setting Up the Tenant File .......................................................................... 211

Preparing a Welcome Package for Your New Tenant ............................. 212

Chapter 12: Collecting and Increasing Rent . . . . . . . . . . . . . . . . . . . . .213

Creating a Written Rent Collection Policy ................................................ 214

When rent is due ................................................................................ 214

Where rent is paid ............................................................................. 217

How rent is paid .................................................................................218

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Property Management Kit For Dummies, 2nd Edition

xiv

Dealing with Rent Collection Problems .................................................... 220

Collecting late rent ............................................................................221

Charging late fees...............................................................................222

Handling returned rent payments ...................................................223

Dealing with partial rent payments .................................................225

Serving legal notices .......................................................................... 225

How to Handle Increasing the Rent ........................................................... 226

Figuring out how to raise the rent ................................................... 226

Keeping your tenants (relatively) happy ........................................227

Chapter 13: Keeping the Good Tenants — and Your Sanity. . . . . . . .229

Knowing What Tenants Want ..................................................................... 229

Timely and effective communication ..............................................230

Quick responses to maintenance requests ....................................231

Consistent respect for their privacy ...............................................231

Equal enforcement of house rules ................................................... 232

Fair rental rates and increases .........................................................232

Recognizing the Ins and Outs of Renewing Leases ................................. 233

Reducing your turnover ....................................................................233

Offering incentives for tenants to stay ............................................236

Following up with tenants after move-out ...................................... 238

Chapter 14: Dealing with Problem Tenants. . . . . . . . . . . . . . . . . . . . . .239

Recognizing and Responding to Common Tenant Problems ................. 239

Late or nonpayment of rent ..............................................................240

Additional occupants ........................................................................ 241

Inappropriate noise level .................................................................. 242

Unsupervised children ...................................................................... 243

Exploring Alternatives to Eviction ............................................................243

Negotiating a voluntary move-out ................................................... 244

Using mediation or arbitration services ......................................... 244

Taking your tenant to court .............................................................244

Giving ’Em the Boot: Evicting a Tenant .................................................... 245

Serving legal notices .......................................................................... 245

Collecting judgments ......................................................................... 248

Handling Unusual Tenant Situations ......................................................... 249

Bankruptcies.......................................................................................249

Illegal holdovers .................................................................................249

Broken rental contracts ....................................................................250

Assignments or subleases ................................................................ 251

Departing roommates........................................................................251

Domestic problems............................................................................252

Tenant deaths.....................................................................................252

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Table of Contents

Chapter 15: Moving Out the Tenants. . . . . . . . . . . . . . . . . . . . . . . . . . . .253

Requiring Written Notice of Your Tenant’s Move-Out Plans ................. 254

Providing Your Tenant with a Move-Out Information Letter .................256

Walking Through the Unit at Move-Out ....................................................257

Getting the 411 on the walk-through ............................................... 258

Paying (or not paying!) the security deposit .................................. 259

Defining ordinary wear and tear ...................................................... 260

Using a Security Deposit Itemization Form ....................................261

Deducting from the security deposit ..............................................262

Dealing with Special Situations .................................................................. 264

Forking out the dough: When damage and unpaid rent

exceed the security deposit ..........................................................265

Having your facts straight: When disputes arise

about the security deposit ............................................................ 265

Reclaiming what’s yours: When the rental is abandoned ............ 266

Part IV: Techniques and Tools

for Managing the Property ........................................ 269

Chapter 16: Working with Employees and Contractors . . . . . . . . . . .271

Hiring Employees ......................................................................................... 271

Establishing job duties, work schedule, and compensation ........ 272

Screening employees .........................................................................273

Knowing your responsibilities .........................................................275

Working with your manager .............................................................276

Firing an employee ............................................................................277

Building Your Contractor and Vendor Dream Team .............................. 279

Recognizing what to look for ............................................................ 279

Avoiding common pitfalls ................................................................. 280

Chapter 17: Maintaining the Property . . . . . . . . . . . . . . . . . . . . . . . . . .283

Recognizing the Importance of a Maintenance Plan ............................... 284

Being Prepared for Maintenance Issues ................................................... 285

Emergency maintenance ................................................................... 285

Preventive maintenance ...................................................................286

Corrective maintenance .................................................................... 287

Custodial maintenance ...................................................................... 287

Cosmetic maintenance ...................................................................... 288

Handling Rental Property Maintenance .................................................... 288

Responding to tenant maintenance request ..................................289

Keeping tenants from doing repairs ................................................292

Purchasing parts and supplies .........................................................295

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Chapter 18: Keeping Safety and Security in Mind . . . . . . . . . . . . . . . .297

Tackling Crime in and around Your Rental Property ............................. 297

Turning to crime prevention programs ..........................................298

Paying attention to tenant questions and complaints

about safety-related issues ........................................................... 299

Responding to crimes when they occur ......................................... 301

Taking Necessary Security Precautions ................................................... 301

Keys and access-control systems .................................................... 302

Lighting ...............................................................................................303

Security firms .....................................................................................304

Addressing Environmental Issues ............................................................. 305

Fire safety............................................................................................305

Carbon monoxide ..............................................................................306

Electromagnetic fields .......................................................................307

Mother Nature’s wrath ......................................................................307

Mold .....................................................................................................309

Part V: Money, Money, Money! ................................. 311

Chapter 19: Two Necessities of Property Management:

Insurance and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .313

Cover Me, I’m Going In: Making Sure You Have

the Insurance You Need ..........................................................................313

Telling the difference among the types of insurance

coverage you can get ..................................................................... 314

Determining the right deductible .................................................... 317

Letting your tenants know about renter’s insurance .................... 318

Handling potential claims ................................................................. 319

The Tax Man Cometh: Knowing Which Taxes You’re

Responsible for Paying ............................................................................321

Making sense of income taxes ..........................................................321

Grasping (and appealing) property taxes ....................................... 324

Chapter 20: Financial Management and Recordkeeping . . . . . . . . . .325

Organizing Your Files ..................................................................................325

Maintaining Property Records ................................................................... 327

Taking Care of Business: Accounting ........................................................328

Creating a budget and managing your cash flow ........................... 329

Using computers for financial management ...................................330

Chapter 21: Finding New Ways to Increase Your Cash Flow:

Only for the Daring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .335

Considering Non-Rent Revenue ................................................................. 335

Earning some cash with the wash: Laundry machines ................. 336

Stowing some dough: Storage ..........................................................337

Selling your space: Parking ...............................................................337

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xvii

Table of Contents

Converting the World Wide Web to cash: Internet access ........... 338

Cashing in on the ol’ dining room set: Furnished rentals .............338

Putting Lease Options to Work for You ....................................................339

Taking Advantage of Government Programs ........................................... 341

The scoop on rental subsidy programs .......................................... 342

The lowdown on Section 8 ................................................................ 342

The 4-1-1 on rehabilitation loans .....................................................346

Working in Niche Markets .......................................................................... 347

Taking another look at your pet policy ........................................... 347

Renting to students ...........................................................................348

Catering to senior citizens ................................................................349

Designating your rental units smoke-free .......................................350

Part VI: The Part of Tens ........................................... 353

Chapter 22: Ten Reasons to Become a Rental Property Owner. . . . .355

You Can Diversify Your Investments ........................................................ 355

You Don’t Need Much Money to Start ...................................................... 355

It Can Be a Second Income ......................................................................... 356

You Gain Tax Advantages ........................................................................... 356

Real Estate Holds Its Value .........................................................................357

You Get Leverage ......................................................................................... 357

It Beats Inflation ........................................................................................... 357

You Can Shelter Your Income ....................................................................358

You Get a Positive Cash Flow ..................................................................... 358

It Can Help You Retire ................................................................................. 358

Chapter 23: Ten Ways to Rent Your Vacancy . . . . . . . . . . . . . . . . . . . .359

Maintain Curb Appeal ................................................................................. 359

Keep the Unit in Rent-Ready Condition .................................................... 359

Establish a Competitive Rent ..................................................................... 360

Offer Prospects a Rate Guarantee ............................................................. 360

Stay Ahead of the Technology Curve ........................................................360

Offer Referral Fees .......................................................................................361

Accept Pets ................................................................................................... 361

Offer Move-In Gifts or Upgrades ................................................................ 361

Contact Corporate Relocation Services .................................................... 362

Accept Section 8 .......................................................................................... 362

Appendix A: On the CD ............................................. 363

System Requirements ................................................................................. 363

Using the CD .................................................................................................364

Software ........................................................................................................ 364

What You’ll Find on the CD ........................................................................ 365

Forms ...................................................................................................365

Legal information ............................................................................... 367

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xviii

Bonus Part of Tens chapter ..............................................................368

Educational opportunities and professional designations ........... 368

Resources ...........................................................................................369

Troubleshooting ..........................................................................................370

Appendix B: State Statutes

for Landlord-Tenant Laws .......................................... 371

Landlord-Tenant Statutes by State ............................................................ 372

Scenario-Specific Laws by State ................................................................. 382

Index ....................................................................... 393

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Introduction

elcome to Property Management Kit For Dummies, 2nd Edition. You

can discover many of life’s lessons by doing some on-the-job trial and

error. But property management shouldn’t be one of them — the mistakes

are too costly and the legal ramifications too severe. This book gives you

proven strategies to make rental property ownership and management both

profitable and pleasant.

About This Book

Many landlord-tenant relationships are strained, but they don’t have to be

that way. A rental property owner who knows how to properly manage his

rental property and responds promptly to the legitimate concerns of his ten-

ants will be rewarded with good people who stick around. The key is prop-

erly maintaining your rental property and constantly investing in upgrades

and improvements. By doing this, you can be successful in meeting your

long-term financial goals and realize that being a landlord is an excellent pri-

mary or secondary source of income.

This book is based on hands-on experience and lessons from my own real-life

examples. I have an entirely different view from other property managers

that your tenants are your customers, not your enemies, and as such, they

should be treated with respect. Not everyone is cut out to be a property man-

ager, and I want to make sure you understand not only the basics of the

rental housing business but also some of the tricks that can make you glad

you’re a real estate investor.

Although this book is overflowing with useful advice and information, it’s pre-

sented in a light, easy-to-access format. It explains how to wear many hats in

the property management business: advertiser/promoter (in seeking ten-

ants), host (in showing the property), handyman (in keeping up with and

arranging for repairs), bookkeeper (in maintaining records), and even coun-

selor (in dealing with tenants and their problems). Just as important, this

book helps you maintain your sense of humor — and your sanity — as you

deal with these challenges and more.

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Property Management Kit For Dummies, 2nd Edition

I wrote this book in essentially chronological order — from your first entry

into the world of rental property ownership and your corresponding steps to

prepare and promote your property to showing your rental and selecting the

right tenants. As a result, reading the book cover to cover makes sense, but

feel free to read the sections that are most relevant to you at any given time.

Skip around and read about those areas that are giving you problems, and

I’m confident that you’ll find some new solutions to try.

To make your life easier, I’ve included many of the forms you need to be

successful in managing your rental — whether you’re just starting out with a

single-family rental home or condo, you have a handful of rental units, or you

possess a whole portfolio of rental properties. These forms are all on the

included CD-ROM, so you can just print them right out, have your local legal

counsel review them, and start putting them to use.

Conventions Used in This Book

To help you navigate this book, I use the following conventions:

 Italics highlight new, somewhat technical terms, such as estoppel

agreement, and emphasize words when I’m making a point.

 Boldface text indicates key words in bulleted and numbered lists.

 Monofont highlights Web sites and e-mail addresses.

What You’re Not to Read

I’d certainly love for you to read every single word I’ve written in this book,

but I understand that you’re a busy person. Face it: Managing rental property

takes time, so you want to read just the essential info to help you find suc-

cess. In that case, feel free to skip the following:

 The sidebars: These gray-shaded boxes are full of fun bits or humorous

stories that are quite interesting (if I do say so myself), but not essential

for you to understand just what you need to know.

 Text with True Story icons: These passages contain some of my real-life

experiences to help keep you from making my mistakes.

Foolish Assumptions

In this book, I’m making some general assumptions about who you are:

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Introduction

 You’re an unintentional property owner — someone who, through a

series of circumstances, suddenly and unexpectedly came upon an

opportunity to own property. Perhaps you inherited a house from a rela-

tive and, not wanting it to sit idle, you decided to rent it out. Or maybe

you transferred to a job in another city and, because you’ve been unable

to sell your home, you’ve been forced to rent the property to help cover

the mortgage and operating expenses. Many property owners find them-

selves in the rental housing business almost by accident, so if you count

yourself in this group, you’re not alone.

 You’re one of those people who has made a conscious decision to

become a rental property owner. Perhaps, like many rental owners with

a plan, you needed to buy a new, larger home and decided to keep your

existing home as a rental property. Or maybe, while you were looking

to own your own place, you found a great duplex and decided to live in

one unit while renting out the other. In a world where people seem to

have more and more demands on their time, many aspects of rental

property ownership — like the capacity to supplement a retirement plan

with additional sources of cash flow or the proven opportunity to build

wealth — are very appealing. The key to achieving this success is finding

a way to make money while still retaining control over your life.

Real estate offers one of the best opportunities to develop a steady stream of

residual income that’s being earned whether you’re sleeping, participating in

your favorite leisure activity, enjoying your retirement, or relaxing on vaca-

tion. Whatever the circumstances, the bottom line is the same: You hope to

generate sufficient income from the property to cover the debt service, pay

for all operating expenses, and possibly provide some cash flow along with

tax benefits, appreciation, and equity buildup. The key to your success is

knowing how to manage people and time. And this book has plenty to offer

you on that front.

How This Book Is Organized

Property Management Kit For Dummies, 2nd Edition, is organized into six

parts. The chapters within each part cover specific topic areas in more

detail. So you can easily and quickly scan a topic of interest or troubleshoot

the source of your latest headache! Each part addresses a major area of

rental housing management. Following is a brief summary of what I cover:

Part I: So You Want to Be a Landlord?

Managing rental property isn’t everyone’s cup of tea. The chapters in this

part assist you in evaluating your skills and personality to see whether you

have what it takes to manage rental units — or whether you should call in the

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Property Management Kit For Dummies, 2nd Edition

property management cavalry. If a management company is the answer to

your prayers, I show you how to select one, what to expect, and how much

it’ll cost in this part. Finally, the day of your escrow closing has arrived and

the ink is dry, so flip here to find out what your immediate priorities are as

you take over your new rental property.

Part II: Renting Your Property

The most important aspect of rental housing is keeping the unit occupied

with paying tenants who don’t destroy it or terrorize the neighbors. In this

part, you figure out how to prepare the property for rent, set the rents and

security deposits, develop a comprehensive (yet cost-effective) advertising

campaign, and show your rental unit to prospective tenants. Because all

tenants look great on paper, I also fill you in on some tricks and techniques

for establishing good tenant selection criteria.

Part III: The Brass Tacks

of Managing Rentals

This part takes you from moving in your new tenants to moving them out —

and everything in between. You get some strategies for collecting and

increasing rent, retaining tenants, and dealing with those few tenants who

give you a headache whenever your paths cross. Minimizing vacancies

and retaining tenants is the key to success as a rental owner. But when your

tenants complain incessantly, decide to repaint in nontraditional colors,

or stop paying the rent, the real challenge of managing rental housing

begins. In this part, you discover techniques for dealing with these issues

and more.

Part IV: Techniques and Tools

for Managing the Property

Assembling the right team of professionals — from employees to

contractors — is one of the main ways to find success as a landlord.

Another way involves maintenance, which can be one of the largest

controllable expenses most rental owners face. In this part, I also shed

light on how to meet the minimum standards required for your rental

property to be habitable and the pros and cons of different alternatives for

handling maintenance.

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Introduction

Last but most certainly not least, because landlords and property managers

are sued more than any other business entity, you definitely want to review

the issues of crime, fire protection, environmental hazards, and the safety

and security of your rentals — and I help you do that here, too.

Part V: Money, Money, Money!

Having the proper insurance for your rental properties and property manage-

ment activities can be a complex topic, so in this part, I guide you through

the ins and outs of insurance. Taxes are another inevitability of the rental

property business, so here’s where you can find basic info on property taxes,

the way rental property income is taxed, and some of the tax advantages of

owning rental property. With all that money going out for insurance and

taxes, you also want to know just how much cash flow your rental empire is

generating, so I provide you with some basics on rental accounting and

recordkeeping.

Every seasoned rental owner should look for additional sources of income

beyond rent, including the opportunities and pitfalls of lease options, which I

cover in this part. The effect of government-subsidized housing programs

continues to play an important role in many communities, so here you can

find info on the advantages and disadvantages of working with public rental

assistance programs. Niche rental markets — like those catering to students

and pet owners — are also worthy of your consideration, and I let you know

how you can use them to your advantage.

Part VI: The Part of Tens

Here, in a concise and lively set of condensed chapters, are the tips to make

the difference between success and foreclosure. In this part, I address the

benefits of owning rental properties and tips to rent your vacancy today. I

also suggest you check out the CD for a bonus Part of Tens chapter on ten

common management mistakes and how to avoid them.

Property management and rental housing laws are dynamic, with something

new arising every day. So because I’m just that nice of a guy, I also offer an

appendix to help you navigate them. Count on the invaluable resources in

this appendix to keep you current and improve your management skills.

Icons Used in This Book

Scattered throughout the book are icons to guide you along your way

and highlight some of the suggestions, solutions, and cautions of property

management.

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Property Management Kit For Dummies, 2nd Edition

Keep your sights on the bull’s-eye for important advice and critical insight into

the best practices in property management.

Remember these important points of information, and you’ll have great

success as a rental property owner.

This icon highlights the landmines that both novice and experienced rental

property owners need to avoid.

This icon points your page-turnin’ fingers to the enclosed CD-ROM to review

(and ideally use) the file or form being referenced.

Focus on this icon for real-life anecdotes from my many years of experience

and mistakes. When you’ve managed more than 40,000 rental units in 30 years,

you see some interesting situations. Now, I share them with you.

Where to Go from Here

Like any great resource book, you must read it! Property Management Kit For

Dummies, 2nd Edition, is designed to be perfect for experienced or seasoned

landlords, as well as rookies who still think all tenants are nice and prompt

with rent payments.

Whether you’re contemplating rental real estate, looking to fine-tune your

proven landlord secrets, or facing total financial ruin at the hands of the

Tenant from Hell, Property Management Kit For Dummies, 2nd Edition, offers

chapter after chapter of solid rental property management advice, especially

for the small rental property owner. It explains how to attract qualified pros-

pects; select and screen tenants; maintain the rental rate; handle security

deposits, rental contracts, broken water pipes, late rents, tenants who over-

stay (and don’t pay), and more. Find the topic you want to know more about

and start reading right there. Remember: Everything is manageable and

workable — if you know what you’re doing!

Property Management Kit for Dummies, 2nd Edition, helps you protect your

investment and maintain your sense of humor, as well as your sanity, as

you deal with one of the most unpredictable professions in life — property

management. Consider this book your Property Management Bible, written

just for you.

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Part I

So You Want

to Be a Landlord?

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In this part . . .

anaging rental property isn’t for the faint of heart,

but it can be very rewarding for the right person.

The chapters in this part guide you through the process

of figuring out whether you have what it takes to manage

rental property or whether you’re better off leaving it to a

pro — someone you hire to do the dirty work for you. I

also fill you in on what you need to know if you’re taking

over ownership of a rental property, including how to deal

with the current tenants and inform them of your policies

and procedures. This is the part for you if you’re just

starting to think about purchasing a rental property but

aren’t quite sure what that entails.

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Chapter 1

Property Management 101

In This Chapter

 Figuring out what property management is all about and determining whether it’s in

your future

 Exploring different types of real estate

 Recognizing the steps involved in renting your property

 Walking through the important day-to-day details of property management

ou probably already have some idea of what property management

is about, because you’ve likely rented an apartment or house at some

point in your life. Even if you haven’t, I bet you’ve noticed the less-than-

flattering portrayal of landlords on television shows such as I Love Lucy

or Three’s Company. Or perhaps you’ve heard horror stories from rental

property managers you know about tenants who make their lives a living

nightmare.

The movies have also been quite unkind to rental property owners and

managers. I often feel it should be mandatory for all rental property owners

and managers to watch Pacific Heights. This film tells the infamous story of

a young couple who scrimped and saved every nickel they could to invest

in a pricey Victorian-era subdivided house in the Pacific Heights neighbor-

hood of San Francisco, only to have a con man destroy their dreams as he

systematically breaks every rule in the book — including the breeding of

roaches and physical destruction of the premises.

But don’t be fooled into thinking that property management isn’t important

or rewarding. The key to long-term success and wealth building through real

estate ownership lies in the foundation you acquire as a hands-on property

manager. For instance, often you start out managing rental properties owned

by someone else and gain a great deal of experience that you can use for

your own portfolio.

There are many positive reasons for becoming a rental property owner or

manager — and just as many ways of doing so. Perhaps you’ve saved up

the down payment to purchase your first small rental unit and hope to see

your investment grow over the years as a nice retirement nest egg or a

supplement to your current source of income. Maybe you want to invest in

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Part I: So You Want to Be a Landlord?

a medium-sized apartment building and build some equity as well as rental

income to supplement or replace your current source of income. Perhaps

you’ve inherited Aunt Gertrude’s run-down cottage and need to find a good

tenant who’ll care for it and pay the rent on time. Or maybe you’ve recently

closed on your new primary residence only to find that selling your existing

home isn’t as easy as the real estate agent promised.

Whether you plan to become a full- or part-time property manager, you need

to know what you’re doing — legally and financially. This chapter serves

as a jumping-off point to the rental property world. Here you can find useful,

practical info, tips, and checklists suitable for novice or seasoned rental

property managers. So get ready for some practical advice from the Tenant

Trenches to help you handle situations when they arise!

Understanding What Property

Management Really Is

Property managers provide consumers with a product known as shelter.

In other words, as a property manager, you’re supplying tenants with a place

to live in exchange for the payment of rent. Although property management

doesn’t seem that complex, you can avoid the many mistakes unprepared

property managers make by knowing what you’re getting into.

The following sections give you a quick overview of the pros and cons of

property management. Chapter 2 provides more in-depth analysis of these

advantages and disadvantages to help you determine whether renting your

property’s the right choice for you.

Considering the pros

Property management can be a rewarding and fun venture. I can’t imagine my

life without some aspect of property management in it (why else would I have

written this book, right?). Following are some of the reasons I get such a kick

out of this business:

 Variety: Personally, I enjoy the variety of tasks and challenges found in

property management. Sure, some aspects of it are repetitious. Rent’s

due every month after all. But for the most part, every day in property

management is something new.

 Interaction with different people: If you’re a people person, you’ll find

that property management is a great opportunity to meet all types of

people. Not everyone you encounter will be someone you want to make

your close friend, but you’ll certainly have the chance to work with a

smorgasbord of personalities.

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Chapter 1: Property Management 101

 Development of skills: Property management requires diverse skills,

because you must handle so many different tasks (like marketing,

screening, and maintenance, just to name a few). But it also allows you

to grow those skills beyond the basics through patience and passion,

like by moving from advertising your rental unit in a basic way to analyz-

ing ad campaigns for unrelated products and applying those concepts

to rental housing.

 Experience with real estate investment: As you manage rental property,

you obtain the necessary skills to become a successful real estate

investor. Of course, some real estate investors succeed without ever

being hands-on property managers because they hire others to handle

the task for them. However, I believe every rental property owner

should gain that real estate investment expertise by actively working as

a property manager for several years.

Confronting the icky parts

You can’t expect all aspects of property management to be fun. Just like your

primary job, some days run smoothly; others are filled with problems. Here

are a couple of the bad aspects to being a property manager:

 Long hours: Because you’re dealing with housing, you can’t guarantee

when you’re going to be needed. It may be 3 p.m. or 3 a.m. Like me, you

can expect to be constantly on-call, even when you’re on vacation, in

order to deal with issues that only the rental owner or property manager

can decide. Fortunately, you can minimize these inconveniences by

planning carefully and hiring competent and reliable employees and

vendors who can prevent many unexpected emergencies through good

management and maintenance. However, owning and managing rental

property remains a 24/7, year-round commitment.

 Difficult tenants: Despite the great people you meet, property manage-

ment has its fill of difficult and challenging personalities, including

people who’re downright mean and unpleasant. As a rental property

owner and manager, you have to be prepared for adversarial and

confrontational relationships with others. Collecting the rent from a

delinquent tenant, listening to questionable excuses, or demanding

a contractor come back and do the job properly requires patience,

persistence, and a fair but firm approach.

The good news is that these negatives can be found in many other careers or

professions that don’t offer the benefits and satisfaction you can get from

property management. So in my opinion, the pros outweigh the cons.

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Part I: So You Want to Be a Landlord?

Eyeing the Types of Real

Estate Available

Before you run out and purchase a rental property, you first need to have

a good idea of the different types you can own. Most real estate investors

specialize in properties with specific uses. Investment properties fall into

classifications such as residential, commercial, industrial, and retail.

For the purpose of this book, I focus only on residential real estate, because

the majority of rental real estate is housing, and the basic concepts are

easy to understand and master. (After you master the basic concepts of

residential real estate, you may want to consider other types of property

management.) The best practices I present here are applicable for these

types of residential rental properties:

 Single-family houses and condominiums or townhomes: Most real

estate investors start with a rental home, condo, or townhome, because

these properties are the easiest ones for most novice landlords to gain

experience on. They may be located in a community association prop-

erty where all the common areas are the association’s responsibility.

 Duplexes and small multi-family or subdivided houses: This category

includes properties with 2 to 4 units but can be up to 15 units. Often

these properties are the first choice for real estate investors who plan to

live in one of the units or want to take the next step up from investing in

a single-family rental home or condo.

 Small multi-family apartment buildings: These buildings usually have

between 15 and 30 units and are best run with on-site management and

regularly scheduled maintenance and contractor visits.

Renters drive rental property management

The Census Bureau reports that more than one-

third of the U.S. population, or 80 million people,

are renters occupying 36 million rental units,

including nearly 12 million single-family home

rental properties.

Despite these impressive numbers, the individ-

ual property owner still dominates the rental

housing industry. According to the National

Multi-Housing Council, individuals own nearly

85 percent of the small rental properties

with 2 to 4 units and nearly 60 percent of the

residential income properties with 5 to 49 rental

units. In comparison, one of the most popular

ways for individuals to invest in real estate is

through Real Estate Investment Trusts (REITs),

which have exploded onto the market with the

acquisition of billions of dollars of high-profile

rental real estate assets. Yet, in spite of the sig-

nificant publicity they’ve received in the real

estate media, REITs actually own less than 10

percent of all residential rental housing units in

the U.S.

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Chapter 1: Property Management 101

 Medium to large multi-family apartment buildings: These properties

are larger buildings that can have 30 or more rental units in a single

location with an on-site manager or maintenance staff. Owning one of

these properties is the goal for many real estate investors who look

forward to being able to hire a professional property manager and just

check their bank account for their regular cash distributions.

No matter what type of residential real estate you’re involved with, you need

to understand the basics of property management. You must market or staff

a property differently depending on its size and location, but many of the

fundamentals are the same regardless.

Over the course of your tenure as a rental property manager, you’re probably

going to manage several different types of properties. That’s just one of

the challenging yet fulfilling aspects of the job. For example, you may start

out managing single-family rental homes or condos and then see your invest-

ments or career progress to larger rental properties. Sometimes people in

the rental housing business start out as on-site employees for large rental

properties, learn the ropes, and later apply that knowledge to become the

Donald Trump of rental houses in their area.

Owning and managing all types of rental property can be lucrative, and I

suggest you jump in where you have your first opportunity, because no rules

mandate your starting position.

Renting Your Property

One of the first and most important lessons I learned when I started in prop-

erty management more than 30 years ago is that vacant real estate isn’t a

very good investment. You need to fill those vacancies and keep them filled

with tenants who pay on time. Just try looking in the mirror and telling your-

self that all the rent came in last month. I bet you can’t do it without smiling!

Of course, renting your property and retaining your tenants doesn’t just

magically happen; it requires a plan and a lot of work. But you want to

work smart and not just hard, so that’s why I show you some of the best

practices for preparing your rental units, setting your rents, attracting

qualified prospects, and closing the sale.

In order to be a successful property manager, you need to follow certain

steps. The following sections cover the highlights of what to do — from

getting your property ready for tenants to getting prospects to sign on the

dotted line. Chapter 4 expands on where it all begins: the acquisition of the

rental property. Part II then helps you position your new rental property

within the rental market and discover how to find good tenants.

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Part I: So You Want to Be a Landlord?

Preparing the property

Before you can rent your property, you have to make sure it’s ready for a

tenant to move in. However, you can’t simply put a For Rent sign up and

expect to rent to the first caller. You need to spend some time properly

preparing the property. And by “some time” I mean a lot.

Relax! Tear up that application to those cable shows that completely reno-

vate your fixer-upper for free because you can prepare your property your-

self. Just remember to focus on the inside as well as the outside. Chapter 5

shows you the best way to determine what to upgrade and renovate in order

to meet the needs of your target market of prospective renters. I also explain

how to ensure that your property’s curb appeal, or its exterior appearance,

makes your potential new tenants want to see the inside of it and not keep

driving by to the next property on their list.

Factors that influence real estate as an investment

Almost everyone has heard the old adage that

the top three keys to success in real estate are

location, location, location. This adage is more

than just a cliché. Unlike a stock investment,

real estate can’t be easily liquidated and rein-

vested into another investment opportunity in a

different geographic area. Real estate success

is closely correlated to a property’s location.

Real estate’s also a very cyclical business that’s

subject to the Economics 101 concepts of

supply and demand. During economic business

expansions, the demand for real estate is

strong, enabling owners to raise rents. With the

higher rents, real estate developers can build

new properties, which causes the supply of real

estate to catch up with the demand and forces

rent increases to slow or disappear. When

the business economy begins to slow, the

demand declines, and once again you have an

abundance of rental real estate. This cycle

typically repeats every seven to ten years but

can go longer. One of the best reasons for

investing in residential real estate is that it

tends to be the most stable sector of the

real estate market.

Thanks to very generous tax laws, for many

years, real estate investors really didn’t have to

worry about the cash flow generated from their

properties. An owner’s ability to generate tax

losses that could be offset against earned

income, plus other creative tax strategies, out-

weighed the common sense goal of generating

more income than expense. Positive cash flow

was just an added benefit.

The bottom line: After you purchase your prop-

erty, you can’t effectively control or change its

location. Nor can you really influence the over-

all business economy or real estate cycles.

Seem perplexing? Many late-night so-called

investing gurus try to sell you their DVDs, but if

you’re looking for honest advice on the proper

way to find, evaluate, and invest in residential

real estate, then I suggest you read Real Estate

Investing For Dummies, which I coauthored

with Eric Tyson.

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Chapter 1: Property Management 101

During this stage, you really get to test your decorating skills on a budget,

because you don’t want to overimprove the property. But if you’re too tight

and try to get by with anything less than your best effort, be ready for the

majority of those individuals showing interest in your rental unit to be the

least-qualified prospective tenants.

To get the great tenants, you need to guarantee your rental property com-

pares favorably to other properties in your area and makes that important

positive first impression. This impression starts on the exterior with a neat

and well-maintained appearance and continues with a clean and inviting

interior with the features and amenities expected by prospective tenants in

your area.

Properly preparing the rental unit also often requires the use of outside

vendors or contractors. What you don’t contract out — tasks like basic

cleaning, maintenance, and painting — you need to do yourself. You also

need to know how to perform a careful inspection to make sure the rental

unit’s ready to show. I give you details about how to accomplish all these

tasks in Chapter 5.

Knowing how much to charge

Understanding what you can charge your tenants is far from arbitrary. Setting

the rent in particular can be tricky — especially if you’ve just spent hours

investing your time and sweat into renovating and scouring your rental unit

to make it sparkle.

In such cases, overestimating the market value of your rental unit becomes

very easy, because you have so much personally invested. But your pros-

pects aren’t likely to be impressed that you laid the tile. Instead, they’ll

quickly point out that the color of the carpet doesn’t match their furniture,

but if you lower the rent $300 per month, they’ll consider taking the unit off

your hands, almost as if they’re doing you a favor. You may be able to struc-

ture some mutually beneficial rental concessions, but don’t be a pushover.

Many rental property owners are simply too nice. Maybe you’re someone

who has trouble bargaining and holding out for the top fair value dollar, kind

of like my mother-in-law, a sweet but overly generous woman — especially

when it came to yard sales. My wife and I are glad no one ever offered Rita 50

cents for our car!

In addition to setting the rent, you need to make the following decisions

before a tenant moves in:

 The amount of the security deposit: Setting security deposits is a func-

tion of not only market conditions but also limitations on the amount

you can charge and whether that amount’s fully refundable. These

restrictions are determined by your state laws. Determining whether

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Part I: So You Want to Be a Landlord?

you want to pay your tenants interest on the deposits you hold is also

subject to law, but certain advantages can warrant doing so even where

not required — especially for long-term tenants.

The best way to make these decisions is to understand your local real

estate market and conduct market surveys to see what others are doing.

If everyone else has security deposits set at approximately half of a

month’s rent, requiring your new tenants to come up with a security

deposit of two full months’ rent upon move-in is difficult.

 The type of rental contract: Another important decision that has lasting

consequences is deciding whether a lease or month-to-month rental

agreement is best for your property. Such conclusions are often reached

after conducting a market survey and understanding the pros and cons

of each type of contract.

Check out Chapter 6 for more info on determining how much to charge,

setting deposits, and figuring out what type of rental contract to use.

Arousing prospects’ interest

A successful property manager needs to understand the role of marketing

in creating demand and meeting the needs of local renters. Fortunately,

your marketing and advertising possibilities have increased dramatically

with the advent of the Internet and social media. You (or perhaps your

teenage children) can develop a fantastic Web site with digital photos and

floor plans. Just make sure you’re following all the Fair Housing laws as you

work to generate rental traffic.

In Chapter 7, I review the various electronic and nonelectronic options

available for promoting your rental property and attracting prospective

tenants.

Turning prospects’ interest

into property visits

The ways to attract potential tenants are endless, but the fundamentals of

getting them to visit your rental property are centered around your ability to

answer their questions on the phone. You need to understand how to qualify

your prospects both for what you want in a stable, long-term resident and

what they need in order to call your rental property their “home” for years.

Converting your e-mails or phone calls to actual property visits is the next

essential step to creating maximum interest in your rental unit. Chapter 8

explains how to get prospective tenants to view your property.

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Chapter 1: Property Management 101

The way in which you show your rental property to prospects is important.

Avoid walking from room to room stating the obvious. Instead, point out

certain benefits of your rental unit’s unique or special features. Just don’t

oversell the product and talk fast like a late-night TV used car salesman.

Ultimately, the best technique for showing your rental property is letting the

property show itself, as I explain in Chapter 9.

The best result you can expect to achieve at the property-viewing stage is

convincing the prospect to complete your rental application and put down a

holding deposit. What the prospect can expect from you at this time is the

receipt of any mandatory disclosures.

Picking your tenants and signing the deal

Property management isn’t exactly the dating game, but you do want to

gather information (while following all Fair Housing laws to the letter) and

select a prospective tenant who meets or exceeds your minimum written

rental qualification standards. Tenant selection’s probably the one single

step in the rental process that can make or break you as a property manager,

and I devote a lot of detail to this important topic in Chapter 10.

What seems to be a fairly straightforward process can actually be tricky due

to the various limitations on the questions you can ask and the information

you can request from interested applicants. Follow the same procedure for

everyone so as to comply with Fair Housing laws and determine how you’re

going to verify each prospect’s rental application. Be sure to select your

tenant of choice based on objective criteria and then properly communicate

your decision to both the approved tenant and the unsuccessful applicants.

Getting Your Hands Dirty:

Managing the Property

You never hear from your tenants, yet the check seems to come in the

mail each month. Managing your rental unit seems easy — just like you

pushed a button! But after a year of progressively busting out with pride at

your exceptional property management skills, you decide to drive by the

property . . . only to find that your retirement plans and financial nest

egg are candidates for a remake of Animal House!

In the next several sections, I present the practical, in-the-trenches part of

property management that can help you get familiar with every day-to-day

eventuality related to the operational side of property management and the

life cycle of a tenancy.

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Part I: So You Want to Be a Landlord?

Moving tenants in and out

Coordinating the move-in of a new tenant is one of your most pleasant tasks,

because this time is your best opportunity to ensure your tenant starts out

on the right foot by explaining your rental rules and guidelines. Chapter 11

helps ensure your move-in process runs smoothly.

But all good things must come to an end. That end should start with you

making sure that the move-out date is mutually agreed in writing and that the

tenant understands your expectations, policies, and procedures via a tenant

move-out information letter. I share more about how to make the move-out

process as painless as possible for all involved in Chapter 15.

Collecting rent and keeping

the good tenants

You can greatly improve your chances of making the rent collection process

a positive experience by emphasizing your rent collection policy when

your tenant first moves in and by asking all the who, what, where, and how

questions of rent payments.

But no matter how carefully you screen your tenants and how thoroughly

you explain your rent collection policy, sometimes the inevitable happens

and your tenant’s unable to pay the full rent when it’s due. What do you do?

Start by issuing reasonable but firm policies when the tenant moves in and

enforcing your grace period and late-period policies. Then when your tenant

doesn’t pay the rent or doesn’t live up to his or her responsibilities under

the rental contract, you’re prepared to take the appropriate legal action to

regain possession of your rental property as quickly as possible. Chapter 12

provides more in-depth info to help you collect rent.

Turnover is your number one nemesis as a rental property owner. Although

it’s inevitable, your ability to renew your leases and provide incentives for

your tenants to stay and pay can be significant in controlling your expenses

and maximizing your rental income. That’s why keeping your tenants, particu-

larly your good tenants, is a smart move. After tenants have lived at your

property for a while, you can quickly determine which ones are the better

ones by asking yourself a few questions:

 Who pays the rent on time?

 Who quickly lets you know when the unit needs maintenance?

 Who takes care of the property, perhaps by cleaning up outside debris

and planting flowers?

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Chapter 1: Property Management 101

One of the best ways to ensure your good tenants stay with you is to develop

a tenant-retention program where you offer them incentives. This action

shows that you appreciate them. Chapter 13 offers more on the importance of

developing a good landlord-tenant relationship from the perspective of your

tenants. It also reveals your tenants’ most important needs — good communi-

cation, timely maintenance, respect for their privacy, consistent policies, and

a good value for their rental dollar.

Handling troublesome tenants

Despite your best tenant screening efforts, you’re going to make the wrong

decision at some point and allow a problem tenant to move in or have a good

tenant who turns sour. But you can lessen the number of these incidents by

getting to know some of the problems you may encounter and how to deal

with them early on:

 Late or missed rent payments: The timely payment of rent is the life-

blood of real estate investing because you can’t pay your mortgage or

expenses without it. A written rent collection policy is a valuable tool

to minimize these problems.

 Loud tenants: It only takes one boisterous tenant to disrupt the tran-

quility of the whole neighborhood. Developing and implementing rental

policies and rules can avoid your problem tenant chasing the good

tenants away.

Chapter 14 gives you some additional tools to effectively deal with these

problem tenants. I also describe the best way to handle common tenant prob-

lems and the pros and cons of alternatives to an eviction. But because avoid-

ing eviction doesn’t always work, I make sure you have everything you need

to know to go to court, present a winning case, and collect your judgment.

Life’s full of unexpected events, so I also include suggestions on how to cope

with tenants who

 Fall into bankruptcy

 Refuse to leave

 Insist on leaving early or want someone else to take their place

 Have personal relationships that deteriorate during their tenancy

 Pass away at your property

Maintaining the property

Are you familiar with the saying, “To own is to maintain”? When you have

only a few rental units or are just starting out, you often do much of the

maintenance work on your units yourself. But as you acquire more properties

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Part I: So You Want to Be a Landlord?

or advance in your primary career, you need to explore the benefits and

consequences of using employees. If you own a larger rental property, having

an on-site employee who’s responsible for its day-to-day management is

absolutely mandatory.

To keep your rental property in tip-top shape, you also need to work with

outside vendors and suppliers who are pros within their industry. Always

keep in mind that you get what you pay for and that maintenance can be one

of the largest expenses faced by most landlords. Part IV helps you navigate

the nitty-gritty hands-on aspects of managing employees and contractors and

maintaining your property.

Protecting your investment

Like many property managers, you probably consider your property an

investment. If you continuously lose money, having the property isn’t worth

the hassle or the expense, right? Not to worry. Although you can’t predict

bad weather or crime, you can safeguard the value of your investment by

 Being aware of environmental and natural hazards that can occur:

Minimize your risk or be prepared in case of crime or environmental

hazards such as natural disasters, fire, carbon monoxide, or mold.

Chapter 18 discusses what you need to know.

 Buying the necessary insurance: You can’t avoid buying insurance, so

I make sure you know enough to be dangerous when your insurance

agent says you need coverage for snowstorms at your duplex in Phoenix.

Chapter 19 covers the types of insurance you need to consider.

 Paying your taxes: Taxes aren’t likely to be your favorite subject, but

they’re important. Property taxes are a reality of life almost everywhere;

Chapter 19 makes sure you know how they’re calculated and what you

can do to minimize your tax payments by appealing your property’s

assessed value when market conditions decline.

 Keeping detailed records: You’re going to be so successful as a rental

owner and manager that I need to make sure you have good record-

keeping and financial reporting so you can keep track of all the money

you make. Chapter 20 reveals some simple ways to handle filing and

features my analysis of several of the most popular accounting software

packages offered for property management.

 Increasing your cash flow: Sometimes recouping all the costs for your

rental property isn’t easy, so you may need to find ways to get more

cash in your hands. A wide assortment of options is waiting for you,

including government-subsidized housing programs, special niche

housing markets, and different lease options. Chapter 21 focuses on

these ways to increase your cash flow from some of the traditional

sources of non-rent revenue you may not have considered before.

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Chapter 2

Do You Have What It Takes

to Manage Your Own Rental

Property?

In This Chapter

 Managing people is the key to property management

 Uncovering the kinds of real estate owners

 Being aware of the advantages of owning rental property

 Identifying good managers

 Assessing your management skills and experience

ongratulations! Either you already own rental property, or you’ve made

the decision to buy. Real estate is great whether you’re looking for a

steady, supplemental retirement income or a secure financial future. Most

residential rental property owners want to become financially independent,

and real estate is a proven investment strategy for achieving that goal.

But after you sign your name on the dotted line and officially enter the world

of owning rental property, you face some tough decisions. One of the very first

concerns is who handles the day-to-day management of your rental property.

You have units to lease, rents to collect, tenant complaints to respond to,

and a whole host of property management issues to deal with. So you need to

determine whether you have what it takes to manage your own rental property

or whether you should hire and oversee a professional property management

firm. Owning investment real estate and managing rental units are two separate

functions, and although nearly everyone can invest in real estate, the manage-

ment of it takes time, special skills, and the right personality.

In this chapter, I start by highlighting the importance of relationships with

people because property management is really people management. Next, I

give you the lowdown on some of the advantages of owning rental property,

and then I help you assess whether you have what it takes to manage your

own property.

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Par t I: So You Want to Be a Landlord?

Understanding That Managing Rental

Property Is a People Business

Some rental property owners find themselves managing their own proper-

ties without even knowing what management requires. Managing the physi-

cal aspects of your rental properties (the buildings and money) and keeping

track of your income and expenses are fairly straightforward. However, many

rental property owners’ most difficult lesson is the management of people.

Rental management requires you to deal with many more people than you

may think. In addition to your tenants, you interact with rental prospects,

contractors, suppliers, neighbors, and government employees. People, not

the property, create most rental management problems. An unpredictable

aspect always exists in any relationship with people.

As with most businesses, the ability to work with people is one of the most

important skills in being a successful property manager. If you enjoy interact-

ing with people and can work with them and they can work with you, then

you have a good start to becoming a prosperous property manager.

Identifying the Types

of Real Estate Owners

Rental property management has been around for hundreds of years, since

property owners first realized they could earn income on their land and

buildings by renting them to tenants. These days, the title of landlord is no

longer bestowed only on the landed gentry. There are as many different ways

that people become property owners as there are types of rental properties.

Although the nature of the business has changed over the centuries, today

you can classify rental property owners in the two categories in this section.

However, no matter what category you find yourself in, one thing is constant:

The key to your success is management.

The inadvertent rental property owner

Many property owners find they’re in the rental housing business almost by

accident. Although solid reasons to invest and own rental real estate exist,

many owners begin their real estate careers by fate or through circumstances

beyond their control. Here are a few examples:

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Chapter 2: Do You Have What It Takes to Manage Your Own Rental Property?

 You may have inherited a house from a relative and don’t want it to sit idle.

 You may have transferred to a job in another city and can’t sell your

home, so you’re forced to rent the property because you want it occupied

and some income to help cover the mortgage and operating expenses.

 You’re looking to own your own place and found a great duplex where you

can live in one unit and rent out the other one.

Whatever the circumstances, the bottom line is the same. You, the owner,

hope to generate sufficient income from the property to cover the debt ser-

vice, all operating expenses, and possibly even provide some cash flow along

with appreciation and equity buildup.

The long-term investment

rental property owner

With the tremendous increase in the value of real estate over the past

decade, many individuals have found that real estate investing is a key ele-

ment of their diversified investment portfolio. And why not? Real estate is

a cornerstone of the American dream. Many people strive for years to own

their first home and then realize the tremendous investment opportunity

offered by income-producing rental real estate.

In today’s world, more and more demands are placed on your time, so many

aspects of rental property ownership are very appealing. People want to sup-

plement their current retirement plans with additional sources of cash flow,

and real estate has a proven track record as one of the greatest wealth build-

ers of all time. Most folks find that generating a stable income without having

to punch a time clock or not being limited to earning an income only for time

spent working for someone else is very appealing. Even most professionals,

like lawyers and accountants, are constrained in their income to their billable

hours. The more hours they work, the more money they usually make. Yet

even lawyers and accountants are limited in the actual number of hours they

can work, thus limiting their income potential.

The long-term investment category allows you to accumulate more wealth in

your lifetime than you can with just one source of income. Real estate invest-

ments provide additional cash flow and significant asset value over time. So

what are you waiting for? The time to begin your real estate ownership and

management career is now. The sooner you start, the sooner you can achieve

your personal and financial goals. The key is to find a way to make money

while still retaining control over your life. Real estate offers one of the best

opportunities to develop a steady stream of residual income that’s being

earned whether you’re sleeping, enjoying your favorite leisure activity, or

even retired or on vacation.

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Par t I: So You Want to Be a Landlord?

Recognizing the Advantages

of Owning Rental Property

A great advantage to building wealth through real estate is the ability to use

other people’s money. Your initial purchase of the rental property is likely to be

achieved with the help of financing from a lender. Then your tenants provide the

monthly funds to assist you in making the debt service payments as well as the

payments for ongoing operating expenses and capital improvements.

The wide availability and low cost of real estate financing make real estate

investing a viable and realistic option for virtually everyone. Most people

purchase real estate using leverage gained by borrowing from the seller or a

lender. Leverage is when real estate is purchased with financing, and it usu-

ally consists of a cash down payment from the buyer along with a loan or

other people’s money. There are two types of leverage:

 Positive leverage: Positive leverage is where you’re able to earn a return

not only on your cash investment but also on the entire value of the real

estate. The ability to control significant real estate assets with only a

small cash investment is one of the best reasons to invest in real estate.

For example, you may purchase a $100,000 rental home with $20,000 in

cash and a bank loan for $80,000. If the home value doubles in the next

decade and you sell this home for $200,000, you’ve turned your $20,000

cash investment into a $100,000 profit.

 Negative leverage: Real estate has enjoyed a long run of steady appre-

ciation from the mid-90s through 2005, but you must remember that

real estate doesn’t always appreciate and can even decline. Negative lever-

age can wipe out your entire investment with just a 20 percent decline in the

market value of your rental property. So if you buy a rental home for $200,000

with $40,000 in cash and $160,000 from your bank only to see the economy

falter or the local real estate market sour, you may find that you have to sell

your rental home for less than your acquisition price. If you sell the rental

home for only $160,000 after the costs of sale, you may just have enough

to pay off your bank, and your cash down payment of $40,000 simply

evaporates. Negative leverage is unfortunately the experience of many

investors and homeowners who’ve purchased real estate in the last few

years using little or no cash down payments. The real estate market

has stopped appreciating and has actually declined fairly significantly

in most areas of the country, and many owners find that their mortgage

balance exceeds the current value of their property.

Although you can actually purchase some rental properties without a down

payment, remember that you get what you pay for. The rental properties that

are the best performers in the long run are generally not available with creative

financing.

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Chapter 2: Do You Have What It Takes to Manage Your Own Rental Property?

Limited exceptions do exist where you can reposition a poorly performing

property in an essentially good neighborhood. Although these opportunities

exist in some areas of the country, they’re only for the most experienced real

estate investors and property managers with a high tolerance for risk. Don’t

invest in no-down-payment rental properties in a rental market outside of

your own area or even a local area where you don’t know the neighborhood

extremely well. If you do, you’ll likely be the next seller offering the property

and may even be willing to pay someone to take it off your hands!

Rental real estate also offers you the opportunity to pay off your mortgage

by using your tenant’s money. If you’ve been prudent in purchasing a well-

located rental property in a stable area, you should have enough income to

pay all the operating expenses, utilities, maintenance, taxes, insurance, and

your debt service. Each month your property becomes more valuable while

your tenant is essentially paying all your expenses, including principal and

interest payments on your loan.

Your lender and tenant aren’t the only ones who can help you with the pur-

chase of your rental investment property. Even the government is willing to

offer its money to help your cash flow and encourage more investment in real

estate. In calculating your income tax obligations each year, the government

allows rental property owners to take a deduction or offset to income for

depreciation. Depreciation isn’t an actual out-of-pocket cash expense but an

accounting concept that provides you with an allowance for expected wear

and tear. Depreciation deductions basically reduce the taxable income from

rental properties and give you more cash flow during your ownership. See

Chapter 19 for an explanation of how depreciation can defer income taxes

during ownership until you sell your rental property.

Over time, you may find that your rental income collections grow faster than

your operating expenses for increased monthly cash flow. That’s why many

economists feel real estate is a superior investment, because historically real

estate has been a very effective hedge against inflation. And after your tenants

have finished paying your mortgage for you, you suddenly find that you have

a positive cash flow — in other words, you’re making a profit.

Eyeing the Unique Characteristics

of a Good Manager

Good management equals good financial results. Having tenants who pay

on time, stay for several years, and treat the property and their neighbors

with respect is the key to profitable landlording. However, finding those indi-

viduals is easier said than done. One of the greatest deterrents to financial

independence through real estate investments is the fear of management

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Par t I: So You Want to Be a Landlord?

and dealing with tenants. That’s why management is so important, but what

exactly makes a good manager? The next several sections take a closer look

at the many different aspects of managing your own rental properties.

Realizing that good management

makes a difference

In order to have a firm grasp on managing your rental property, you need to

understand what good management really is. Good management is having a

well-maintained rental property that’s occupied with a paying tenant on a

long-term lease who treats the property like her own. As with many things in

life, managing well is much easier said than done, but by doing your homework

in advance and understanding what it takes to be a good manager, you can

reduce those beginner’s mistakes.

Who hasn’t heard or even personally experienced horror stories about a

greedy or downright unpleasant landlord who took advantage of his tenants?

The image of rental property owners and managers as overbearing, stingy,

and snoopy has become part of the culture. Of course, you’ve probably also

heard about tenants who don’t pay their rent, damage the rental property,

and harass the neighbors and the owner. Virtually all these horror stories

are true, but it isn’t a coincidence or bad luck that they happen to the same

rental property owners again and again.

Unfortunately, bad management can bring down a rental property investment.

For example, owners have problems when they lose control of their rental prop-

erties. If you choose the wrong tenant or fail to address certain maintenance

issues, your real estate investment may turn into a costly nightmare. A novice

rental property owner can quickly find the property turning into a money pit.

Experience is a great teacher — if you can afford the lessons. In rental man-

agement, you can be financially devastated when you have a mortgage to pay

and your new tenant gives you a rubber check for the security deposit and

first month’s rent. And to make matters even more challenging, you may find

that your occupant has skipped town after trashing your rental unit.

Lucky for you, good property management skills can be mastered. Where can

you start? Check out the following:

 This book and accompanying CD: Property Management Kit For

Dummies, 2nd Edition, is a valuable resource that guides you right

through the dangerous minefield of property management.

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Chapter 2: Do You Have What It Takes to Manage Your Own Rental Property?

 Professional organizations: These types of organizations have qualified

staff who can present educational offerings for property owners and

managers. Two of the better organizations include

• The Institute of Real Estate Management (IREM) at www.irem.org

• The National Apartment Association (NAA) at www.naahq.org

Separating your personal style from sound

management

The first encounter with owning real estate for many rental property owners

is their own personal residences. Owning and maintaining your home is actu-

ally very good experience for many aspects of rental property management.

For example, you may be very handy fixing that leaky faucet or painting cabinets.

However, owning a home doesn’t give you all the skills needed to become a

successful rental property owner. The main difference you need to remember is

that a rental property is an investment — nothing more, nothing less. Although

in a perfect world you would find your rental property personally appealing,

remember it’s an income-producing investment.

At your home, you’re in full and direct control of making sure there’s enough

money to pay the debt service on the property. And you take a very serious

interest in making sure that little maintenance problems are addressed while

they’re low-cost items. As a homeowner, you also probably have experience

at trying to live on a budget.

However, in rental property management you look for results that keep your

tenants happy and your costs reasonable. Here’re some examples:

 You need to have the ability to separate your own personal taste and

style from the practical aspects of managing rental property.

 You don’t live on your rental property, so make sure the furnishings and

the condition of the property appeal to the broadest number of potential

renters. You may love to decorate and really look forward to upgrading

your ’70s rental unit décor, including the ubiquitous old shag carpet and

flowered Formica countertops.

 You also need to be very practical and think about the long-term impli-

cations of your management decisions. For example, you may prefer

drapes for window coverings in your own home; however, vertical

blinds are much more practical for a rental property. Although they may

not be as luxurious as draperies, blinds are durable, last longer, and are

much easier to clean.

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Par t I: So You Want to Be a Landlord?

Managing your time

For most rental property owners, managing their rental units is a part-time

job. They handle tenant calls, collect the rent, show the units, and even

perform most maintenance in the early evenings or on weekends. However,

managing your time is an important part of managing your rental properties.

Time management is really about evaluating how much time you have and

then looking for ways to streamline your tasks so that you make the best use

of your time.

Although it can be a part-time job, don’t be fooled. Rental management takes

a lot of time, patience, and hard work to be successful. At first, most people

assume they’re equipped to handle any and all property issues. They may

even find they can manage one, two, or three units without any problems or

time conflicts. They enjoy managing their rental properties and appreciate the

cost savings. However, as their portfolio grows, the need to be very efficient in

handling management activities becomes essential. The challenge of being a

landlord is finding the time required for this second job.

The good news is that time required to be a landlord is in your control. If you

master the proper skills of marketing, tenant screening, and tenant selection,

you can greatly reduce the amount of time you spend managing rental property.

(Check out Chapters 7 and 10 for more info.) You also have to work smart, or

you may find that your time is better spent in other areas than management,

because time is money.

Delegating management activities

As a landlord, you may look at all the tasks you have to do and get a bit over-

whelmed. However, choosing to deal with some responsibilities yourself and

delegating some of them to others can make your job much easier to handle.

To manage your property to the best of your ability, you need to look at your

Home business opportunity

Many people who manage their own rental

properties value the aspect of being their own

boss. They often run their business from a home

office. Many people today are looking for an

opportunity to work at home, and rental man-

agement can provide the second income with

flexible hours.

You may also expand your real estate holdings

to the point that you outgrow your home office

or prefer to have a separate business location.

Many rental properties offer the opportunity to

live and have a small separate management

office on-site.

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Chapter 2: Do You Have What It Takes to Manage Your Own Rental Property?

own set of skills to determine which tasks you can do and which ones you

need to delegate.

Throughout this book, I provide various ways that you may delegate certain

management activities and responsibilities to your very own personal team

of experts comprised of the following:

 A property manager: Ultimately, you can delegate all the management

activities to a professional property manager. However, having a prop-

erty manager doesn’t mean you’re totally off the hook. Depending on

the arrangement with your property manager, you may still find yourself

providing the oversight. (Check out Chapter 3 for more on using a prop-

erty manager.)

 A maintenance professional: For many owners, a contractor can handle

the maintenance of the rental property and grounds more efficiently

and effectively. The skills required to be successful with managing your

own rental properties are different than the skills needed to handle your

own property maintenance. Most rental property owners find that using

trusted and reasonably priced contractors is the best alternative. You

may not have the requisite skills or equipment to do the work properly

and quickly, or you may discover that you’re only able to find time in

the evenings or weekends. Painting a rental unit is faster if you have the

right equipment and experience. Although doing your own painting may

seem more cost-effective, any savings will quickly be lost if the rental

unit sits vacant for additional time. The old saying that time is money is

very true with rental housing. (Refer to Chapter 16 for how to find the

right maintenance personnel.)

I once was hired by a client to manage a large 100-unit rental property

with nearly 30 vacant rental units. The rental market was actually pretty

good, and together we knew we could rent the units after they’d been

painted and cleaned. The owner had always managed the property

personally and used only in-house maintenance personnel for all work,

including painting. Consequently, the owner wanted to have the in-house

maintenance person paint two units per week, but that would take nearly

four months until all the units were rent-ready. I was able to demonstrate

that hiring an outside painting contractor and having the in-house mainte-

nance focus just on the cleaning of the rental units would get all 30 units

rent-ready in less than a month. Even though the outside painting contrac-

tor was an expense the owner didn’t want to incur, it was the better way

to go because we were able to rent the units quickly and more than cover

the additional costs. Sometimes the cheapest way isn’t the best way to

approach a problem.

 An accountant: Many owners may not have the patience and discipline

to keep accurate accounting records that are so important at tax time

and prefer to have a bookkeeper take care of the recordkeeping. A book-

keeper can help you manage your records and bills. See Chapter 20 for

more information on accounting.

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Par t I: So You Want to Be a Landlord?

 A legal expert: Some landlords may look forward to their day in court,

but most find the experience unrewarding and problematic. Using a local

landlord-tenant attorney is a good idea when you have problems involv-

ing legal issues that may end up in court.

 A rental locator service: Some owners use a rental locator service to

provide prescreened rental applicants. Your level of delegation may

very well depend on whether you own one or ten rental units.

Knowing that your style is unique

The most important fact to remember is that no one will ever manage your

rental property like you will. Accept that fact and then determine whether

you’re cut out for property management. Remember, property management

isn’t just a question of style. Ultimately, it comes down to sound, responsible

practices.

You’re motivated more than anyone else to watch out for your real estate

investments. Only you work through the night painting your rental unit for the

new tenant move-in in the morning. Who else would spend a Hawaii vacation

looking through the local newspaper classifieds for creative ad ideas?

Be honest with yourself. Know your strengths and your weaknesses as a prop-

erty manager. You may find you’re able to do the job but wind up with frazzled

nerves and doubts. If you aren’t truly excited and challenged by handling your

own property management tasks, then you’re not likely to have success in the

long run. If you decide that you can’t do it all yourself, then you may need to

delegate (see the preceding section).

Being Honest with Yourself about

Your Skills and Experience

One of the first steps in determining whether to completely self-manage your

rental property or delegate some or all the duties is to analyze your own

skills and experience. Many very successful property owners find they’re

better suited to deal-making, so they leave the day-to-day management for

someone else. This decision is a personal one, but you can make it more

easily by thinking about some of the specifics of managing property.

Property management requires basic skills, including marketing manage-

ment, accounting, and people skills. You don’t need a college degree or a

lot of experience to get started, and you’re sure to pick up all kinds of ideas

about how to do things better along the way.

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Chapter 2: Do You Have What It Takes to Manage Your Own Rental Property?

Examine your own personality. Are you a people person? Serving as a land-

lord is a labor of love; you must love people, you must love working with your

hands, and you must love solving problems. Most of all, you must be able to

do all this without getting much back in the way of appreciation.

Whether you’re confident you have what it takes to be a good rental property

manager or you’re still not sure, take stock of yourself and your abilities by

answering the following questions. Interview yourself as though you were a

job applicant. Ask the tough questions. And, more important, answer honestly.

 Are you a people person who enjoys working with others?

 Are you able to keep your emotions in check and out of your business

decisions?

 Are you a patient and reasonably tolerant person?

 Do you have the temperament to handle problems, respond to com-

plaints, and service requests in a positive and rational manner?

 Are you well-organized in your daily routine?

 Do you have strong time-management skills?

 Are you computer literate?

 Are you meticulous with your paperwork?

 Do you have basic accounting skills?

 Do you have maintenance and repair abilities?

 Are you willing to work and take phone calls on evenings and weekends?

 Do you have sales skills?

 Are you a good negotiator?

 Are you willing to commit the time and effort required to determine the

right rent for your rental unit?

 Are you familiar with or willing to find out about the laws affecting prop-

erty management in your area?

 Are you able and willing to visit your rental property regularly?

 Are you willing to consistently and fairly enforce all property rules and

rental policies?

 Are you interested in finding out more about property management?

 Are you willing to make the commitment to being your own property

manager?

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Par t I: So You Want to Be a Landlord?

Ideally, you answered yes to each question. This assessment isn’t scientific,

of course, but it does raise some important issues, particularly the level of

commitment that you need to succeed as a rental property manager.

You need to be fair, firm, and friendly to all rental prospects and tenants.

Treat everyone impartially and remain patient and calm under stress. Be

determined and unemotional in enforcing rent collection and your policies

and rules. And maintain a positive attitude through it all. Not as simple as it

looks, is it?

Even if you didn’t answer with an enthusiastic “yes” to all the questions in this

section, you may still make a good rental property manager if you’re prepared

to be flexible and learn from your property management experiences. The

really good property managers graduated from the school of hard knocks.

If your assessment revealed that your skills may be better served doing some-

thing other than managing your own property, turn to Chapter 3 for some

alternatives. Owning rental property can still be a great investment, even if

you don’t manage it yourself.

If you’re impatient or easily manipulated, you aren’t suited to being a property

manager. Conveying a professional demeanor to your tenants is important. You

want them to see you as someone who’ll take responsibility for the condition

of the unit. You must also insist that tenants live up to their part of the deal,

pay their rent regularly, and refrain from causing unreasonable damage to your

property.

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Chapter 3

Managing Your Property

Yourself or Hiring a Pro

In This Chapter

 Seeing how self-management can work for you

 Assessing the benefits of working with a pro

 Knowing what to look for in a property management firm

he late-night TV real estate gurus can make real estate investing sound

so simple. But just as important as buying the right property for the right

price, the key to success in real estate is a well-managed property.

Initially, you may try to manage your rental property yourself, particularly

if you have a single-family rental home or duplex. So in this chapter, I guide

you through the pros and cons of managing your own property (as opposed

to hiring a pro to do it for you). If you’re like most owners, though, at some

point you’ll consider hiring a professional property management firm. So

I also give you some tools for evaluating property management companies,

from the services they offer to the fees they charge. I discuss the importance of

experience, qualifications, and credentials. Also, I reveal some of the common

tricks management companies use to generate additional income that aren’t in

your best interest.

Even if you ultimately decide that you are the best manager for your rental

property, the more you know about how the professionals manage property,

the better you’ll be at management yourself.

Managing Your Rental Yourself

With your first rental, you probably do all the work yourself — painting,

cleaning, making repairs, collecting rent, paying bills, and showing units.

In this section, I let you know some of the advantages and disadvantages

to doing it all yourself. Use this information as a way to help you decide

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Part I: So You Want to Be a Landlord?

whether you want to go it alone or whether hiring a pro is for you. If you

decide the latter, check out the information later in this chapter about work-

ing with a professional management company. This is one of the most impor-

tant decisions you make as a rental property owner, so take the time to look

at all your options.

Recognizing the advantages

of self-management

If you have the right traits for managing property (see Chapter 2 to help deter-

mine whether you do), and if you have the time and live close to your prop-

erty, you should definitely do it yourself. Managing your own rental property

has some distinct advantages. By keeping direct control of the management of

your rental property, you can

 Save on a monthly management fee. If you purchase a single-family

rental home or condo as an investment property, you most likely won’t

be able to generate enough money to pay for a professional property

manager and make a profit — at least not right away.

 Save on maintenance costs. You decide who does the repair work or

mows the lawn. Doing your own maintenance or yard work is usually a

good idea; if you hire someone else to do it for you, the cost can devour

your monthly cash flow in a hurry.

Develop a list of reliable, insured fix-it and landscape personnel who do good

work and charge low rates. Even if you hire someone to manage your prop-

erty for you, you’re better off choosing the maintenance contractors yourself,

rather than turning over the decision — and your money — to a professional

property management firm.

Paying attention to the drawbacks

If you’re just starting in the world of property management, you may be

thinking of it as a part-time venture — something you’ll do in addition to your

day job. And if you want, you can keep it that way by limiting the number of

properties you own to just a few. By managing your own property, you may

 Damage your day job. If you’re a higher-income, full-time professional,

rushing off on weekdays to handle some minor crisis at your rental unit

is not only impractical, it can be downright damaging to your career.

Most employers have little tolerance for a second job, particularly one

that often has unpredictable and unscheduled demands.

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Chapter 3: Managing Your Property Yourself or Hiring a Pro

 Spend far too much time. If you earn your living regularly from something

other than managing your rental property, managing that property may

not be worth your valuable time. Rental management can take up more

time than anticipated — either because you’ve bought more rentals, or

because you just didn’t anticipate the time requirements. Remember,

property management often requires working in the evenings and week-

ends, when most prospective tenants want to see your vacant rental

units, and tenants are home to allow access for repairs.

As a jobholder, look at your annual income and figure out approximately what

you earn per hour. Do the same for the cash you’re saving by managing your

own property. Unless your management efforts produce significant cash sav-

ings compared to your job, you may be better off hiring a property manager for

your rental units. The same guideline holds true even if you’re an independent

business owner or self-employed. Your schedule may be more flexible than the

typical fixed workday of a 9-to-5 employee. But if you’re earning $50 an hour as

a consultant, devoting hours of your productive work time to managing rental

units, which may amount to savings of only $25 an hour, may not make sense.

Managing your property from a distance

If you own rental property in another city or state, you may initially consider

managing your unit from afar. As long as your tenants mail their rent checks

and make only a few maintenance demands, this arrangement can work —

but it’s a fragile one. One major problem, or a few minor ones, can turn the

job of managing the rental property into a nightmare.

Many real estate investors are attracted to the prospects of higher returns by

purchasing rental properties in out-of-state areas. But even with lower acquisition

costs and supposedly decent rents, many of these investment opportunities are

too thin to allow for hiring a local professional property manager. Consequently,

long-distance property management becomes tempting. My strong advice is to

think twice about handling your own rental property maintenance from hundreds

of miles away. You need to be in the immediate area to routinely inspect and main-

tain a rental property, especially when a roof leak or broken pipe demands imme-

diate attention.

I once had a client who hired me after having a very bad experience trying

to manage his single-family home from another state. He’d been transferred

more than 1,000 miles away by his company but wanted to rent his home as

an investment. He found a nice family to rent to, and everything was fine for

the first six months. Then one day he got an urgent call from his tenants, com-

plaining that torrential rains caused the roof to leak, making the house unin-

habitable. The owner, still out of state, asked his tenants to assist him in hiring

someone to repair the roof. The work was botched, and he wound up flying

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Part I: So You Want to Be a Landlord?

back and forth twice to straighten out the mess before finally getting the roof

fixed properly. This negative experience ended up costing thousands, easily

wiping out whatever small profit he could’ve made.

Exploring Professional Management

Many rental property owners who are just starting out drift blindly into self-

management by default, because they assume they can’t afford a manage-

ment company without having investigated the cost. Some simply don’t want

to give up part of their profit. “Why pay someone to manage my rental prop-

erty when I can keep the money myself?” is a common refrain. Other owners

would really prefer to hire a professional management company, but they’ve

heard so many horror stories that they don’t know whom to trust. Many of

their concerns are real — some property managers mismanage properties

and lack any semblance of ethics.

Luckily, you can avoid hiring the wrong management company by following

my advice on how to choose a good property manager. The following sec-

tions touch on some important points for you to consider if you’re contem-

plating using a professional management company.

Eyeing the pros and cons of using a pro

If you think that hiring a professional management company may be the right

choice for you, take the time to study this option. Here’re some pros of using

management firms:

 They have the expertise and experience to manage rental property, plus

knowledge about current laws affecting rental housing.

 They’re able to remain fair, firm, and friendly with tenants.

 They have screening procedures and can typically screen tenants more

objectively than you can yourself.

 They handle property management issues throughout the day and have

staffing for after-hour emergencies.

 They have contacts and preferential pricing with many qualified,

licensed, and insured suppliers and vendors who can quickly and effi-

ciently get work done.

 They handle all bookkeeping, including rent collection.

 They have well-established rent collection policies and procedures to

follow when tenants’ rental payments are late.

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Chapter 3: Managing Your Property Yourself or Hiring a Pro

 They have an online presence with Web sites that provide detailed infor-

mation and photos of all their available rental properties.

 They handle all aspects of hiring employees so you don’t have to process

time sheets, calculate and submit payroll, generate paychecks, or over-

see all the legal requirements that come from having employees.

 They can be excellent sources for purchasing additional properties,

because they’re often the first to know when their current clients want

to sell.

Of course, management companies have disadvantages as well:

 Using a management company for small rental properties that you’ve

recently acquired may not be cost-effective because the management

fees can run up to 10 percent of your gross income.

 Some smaller management companies may not be technologically

advanced and aren’t able to offer online services such as rental applica-

tions to prospective tenants and ACH (Automated Clearing House) or

electronic rent payments or maintenance requests to current tenants.

 Some management companies may have in-house maintenance that

charges markups or surcharges on supplies and materials, as well as

increased labor costs.

 They often won’t have the same care, consideration, and concern you

have for the rental property.

 They often charge extra to fill vacancies, or they may take longer to fill

the spots if the property management firm has several other vacancies

they’re dealing with at the same time.

 Some management companies require the tenants to drive to their

offices to apply for the rental, pay rent, or request maintenance, which

can be a disadvantage if the management company isn’t located close to

the rental property.

 Management companies may not be as diligent in collecting delinquent

rent, particularly if the management contract provides that they keep all

late fees and other administrative charges.

 Some management companies may try to falsely impress you with low

maintenance expenses when they’re really not spending enough on

repairs and maintenance needed to properly maintain the property.

 Management companies affiliated with “for sale” real estate brokerages

may be more interested in a large real estate commission from a sale

and may not provide the best property management services.

Even the best property managers need and seek the input of the property

owner so they can formulate a property management plan that will achieve

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Part I: So You Want to Be a Landlord?

the owner’s personal investment goals. A good property manager always

remembers that the rental property belongs to the owner, not the property

manager.

Understanding what a

property manager does

A good management company may be able to operate your rental properties

better and more efficiently than you can on your own. Its superior knowledge

and experience can result in lower costs, higher rents, better residents, and

a well-maintained property. A good management company more than pays

for its costs, allowing you more time to take up additional properties or other

pursuits. Of course, a poor management company can cut into your profits,

not only with its fees but also with improper maintenance and poor-quality

tenants who run your property into the ground. A bad property manager can

leave you in worse shape than if you’d never hired one in the first place.

Professional property managers normally handle a wide range of duties. If

you hire a full-service management company, you typically get the following

services:

 Enforcement of the property’s rules and regulations

 Performance of rental market surveys and rental cost setting

 Preparation, advertisement, and showing of the rental unit

 Preparation of regular accounting reports

 Property inspection

 Rent collection

 Repair and maintenance of the rental unit

 Response to tenant complaints

 Tenant screening and selection

More limited or a la carte management services are also available from some

management companies. Maybe you just need help with the rental of your

property and are willing to pay a leasing fee. Or perhaps you want a property

manager who charges only a small fee to cover the basic service and not much

more. Maybe you want someone to just handle your accounting. The bottom

line: You can pay for just the items that tickle your taste buds instead of shell-

ing out for the full-course menu.

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Chapter 3: Managing Your Property Yourself or Hiring a Pro

Telling the good from the bad

Management companies typically accept responsibility for all operations of the

property, including marketing, tenant selection, rent collection, maintenance,

and accounting. The right property manager can make a big difference in the

cash flow your rental unit generates, because he finds good replacement ten-

ants quickly or makes sure that maintenance is done in a timely manner with-

out breaking your budget. You need a property manager who’s committed to

helping you get the optimum results from your rentals. The following sections

help identify what to think about when searching for a management company

and what to ask potential managers so you can find the right fit.

Finding the right management company for you

When searching for a management company, you want to ensure you find

one that suits you. Size alone isn’t the determining factor in whether a pro-

fessional property manager can deliver quality service. Some management

companies specialize in large rental projects, whereas small operations may

focus on managing individual home rentals and apartment complexes with

only a few units. Don’t assume that a big company managing mega-complexes

will do the best job for your duplex or that a small company has the creden-

tials, experience, and knowledge you need. Try to find property managers

familiar with your kind of rental unit.

With a little research, you can find the right fit for your property. Keep the

following in mind to help you locate the right company for you:

 Check references, particularly the management company’s other clients.

Make a few extra phone calls to check references and don’t sign a man-

agement contract until you feel confident that the company you hire has

a sound track record. Checking with the property management compa-

ny’s chosen referrals isn’t enough. Ask for a list of all its clients and con-

tact the ones with rental properties similar in size and type to your own.

Make certain the rental owners you contact have been with the property

management company long enough to have a meaningful opinion on the

quality of the service and are truly unbiased.

 Make sure the firm you hire manages property exclusively. This guide-

line is particularly important when selecting a management company

for a single-family home, condo, or very small rental property. Many

traditional real estate sales offices (as opposed to property management

firms) offer property management services; however, property manage-

ment is often a loss leader (meaning it costs more for the real estate sales

office to manage your property than they’re charging you for that service,

because they’re hoping to get your business later on when you’re ready

to sell the property). Many property managers in real estate sales offices

don’t have the same credentials, experience, and expertise as employees

of a property management firm. The skills required to represent clients in

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Part I: So You Want to Be a Landlord?

selling property are entirely different than the skills required to manage

property. You can always hire a firm that sells only real estate when the

time comes to dispose of your rental property.

 Verify that the property manager and the management company have

current licenses that are in good standing. You can call or use the

Internet to double-check. Most states require property managers to have

a real estate license and/or a property manager’s license. Simply holding

a license doesn’t ensure exceptional services, but it does show that the

property manager is motivated enough to comply with state law.

 Examine the property manager’s credentials. The Institute of Real

Estate Management (IREM), an organization of professional property

managers, provides professional designations, including the Certified

Property Manager (CPM) and Accredited Residential Manager (ARM).

A very select group of management firms have earned the Accredited

Management Organization (AMO) designation. These designations sig-

nify excellence and dedication. See the included CD for more informa-

tion, plus details on the National Apartment Association’s designations.

 Confirm that the property management company is properly insured.

The company should carry insurance for general liability, automobile

liability, workers’ compensation, and professional liability. The man-

agement company is your agent and will be collecting your rents and

security deposits, so it should also have a fidelity bond to protect you in

case an employee embezzles or mishandles your money. Look for a man-

agement company that has separate accounting for each property man-

aged. Many property managers use a single master trust bank account

for all properties. Although this is legal in most states, avoid this prac-

tice because, typically, the number one violation encountered during

audits of property managers by state oversight agencies is related to

shortages and other misuse of the master trust bank account.

In most management contracts, property management companies have the

ability and right to perform emergency repairs without advance approval

from the owner. Of course, this clause allows the property management com-

pany to take care of problems that occur unexpectedly. Most management

contracts contain clauses that allow property managers to undertake repairs

up to a specified dollar amount without the owner’s advance approval. When

you’re in the early stages of working with a new management company, make

sure you closely monitor its expenses. Even though it may have the legal

right to use funds up to a certain amount, the company should always keep

you informed as the owner. “No surprises” is one of my favorite sayings!

Repairs serve as a profit center for many management companies. They may

offer very low property management fees knowing they’ll make it up through

markups on repairs — and often the repairs aren’t even necessary. Look for a

property management firm that doesn’t mark up materials, supplies, or main-

tenance labor.

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Chapter 3: Managing Your Property Yourself or Hiring a Pro

Knowing what to ask a prospective management company

The quality of your property management company directly affects the success

of your real estate investments and your peace of mind. Visit the management

company’s office and spend time interviewing the specific property manager

who’ll have control of the hands-on management of your property. Here are

some important questions to ask as you interview management firms:

 Can you provide a list of exactly what management services are provided,

including dates I will receive reports, and a breakdown of management costs?

 Can you explain your methods of generating interest in my rental property

and selecting tenants in compliance with all Fair Housing laws?

 Can I contact several of your current and former client references with

rental properties that are similar in type, size, and location to mine?

 Is your firm an Accredited Management Organization (AMO) recognized

by the Institute of Real Estate Management (IREM)?

 Do your staff members hold IREM’s distinguished Certified Property

Manager (CPM) designation or Accredited Residential Manager (ARM)

designation?

 Is your firm an active member in good standing with a local affiliate of

the National Apartment Association (NAA), and does it hold any NAA

designations?

 Who will actually manage the day-to-day activities at my property? What

are his qualifications, and does he exclusively manage real estate?

 Do you provide 24/7 on-call maintenance services with a live person

answering the calls who also has e-mail capability?

 If maintenance is provided in-house or by an affiliated firm, do you only

charge the actual cost of labor and materials without any surcharges,

markups, administrative fees, or other such add-ons?

 Do you pass along any volume purchasing discounts fully and directly to

clients for appliances, carpeting, and other items without any markups?

 Do all funds collected for applicant screening fees, tenant late charges,

and other administrative charges go directly to the owner and not the

manager?

 If allowed by law, are all employees given pre-employment screenings

that include thorough background checking by an independent security

consultant, plus drug and alcohol testing by a certified lab?

 Do you carry Errors and Omissions coverage of at least $500,000, plus

general liability coverage of at least $2,000,000?

 Do you have a $500,000 Fidelity bond and a Forgery and Alterations

policy of at least $25,000 for all employees?

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Part I: So You Want to Be a Landlord?

 Are your legally required state and/or local licenses current and without

any history of violations?

 Do you have separate bank trust accounts for each client rather than a

single master trust bank account containing multiple owners’ funds?

When you hire outside property managers, treat them as valued members of

your management team — but be sure they know you’re the team manager

and understand your long-term goals. If you’re looking for appreciation and

preservation of your rental property’s value, then make sure the management

company keeps your rental property in great condition and looks for long-

term stable tenants rather than just premium rent from short-term rentals. Of

course, the manager should ask before spending significant amounts of your

money, and he should keep you informed on a regular basis.

Compensating your property manager

Management companies are compensated in a variety of ways, and the type

of fees and typical compensation vary widely throughout the country. Make

sure you understand the compensation of your property manager, but never

evaluate the management company based on the management fee alone.

How property management companies charge

The typical professional management fees for single-family homes or individual

rental condominiums are 10 percent of the actual collected income with an

additional fee earned each time the unit is rented. The rental fee can range

from a flat fee of $250 to $500 or a percentage of the monthly rental rate, such

as 50 percent. If the rental home or condo has a high rental value, then the

management fee is often lower, in the 7 to 10 percent range.

When a property manager considers how much to charge you, she typically

looks at the following pieces of information:

 The amount of time required to manage the property: An experienced

property management company owner knows the average number of

hours the property manager, the accounting staff, and other support

personnel will spend each month on managing your property. She then

calculates a management fee schedule that should generate the fees

necessary to provide the proper management company resources to

effectively manage your rental units. If you have larger rental properties,

management fees don’t typically include the services of any on-site man-

ager, superintendent, or caretaker, who is paid separately.

 The size, location, condition, and expected rental collections of the

property: Generally, the larger the rental property, the lower the man-

agement fee as a percentage of collected income. Fees vary by geographic

area and by the income potential of the rental unit, with a higher-end rental

property commanding a lower percentage management fee.

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Chapter 3: Managing Your Property Yourself or Hiring a Pro

However, for certain properties that may be more difficult to manage,

the management company may have higher management fees or addi-

tional charges for certain types of services or for a certain period of time.

Management companies may also propose charging a minimum monthly

management fee or a percentage fee (opting for whichever of the two is

greater). For example, a property that’s in very poor physical condition

and needs extensive repairs and renovations requires a significant increase

in the time spent by the property manager in bidding and supervising the

improvements. This additional time is worthy of separate compensation to

the property manager.

Try to find a company with a management fee that’s a percentage of the col-

lected income; this kind of fee is a strong motivator to the management company

to ensure the rents are kept at market rate and actually collected on time. Never

pay a management fee based on the potential income of a rental unit, only on

actual collected income.

What to prepare for when considering compensation

Your management company’s compensation can be affected by more than

just the standard considerations mentioned in the preceding section.

Knowing how to look beyond the basics can help you save money in the long

run and make your investment in a management company more worthwhile.

Keep the following in mind when analyzing your property manager’s

compensation rate:

 Set a specific deadline for filling vacancies. Distressed rental proper-

ties often require extensive maintenance and repairs and typically have

very low occupancy and require extensive marketing and leasing activi-

ties. The lease-up (filling all your vacant units) of this type of property

is usually an extra cost item, because the property manager will spend

much more time managing this property. As an owner, structuring the

compensation so that the management company has an incentive to get

the property leased-up as soon as possible is best.

 Watch out for management fees that seem too low. When this scenario

occurs, it’s a good indication that the property managers are spread too

thin and may not properly manage your property. Poor management can

result in unhappy tenants, which leads to higher turnover and longer

periods of vacancy without rental income.

 Understand that leasing fees are often justified and usually not negoti-

ated. The most time-intensive portion of property management is tenant

turnover. When one tenant leaves, the property manager must make the

unit rent-ready. Then she must show the property and screen the tenants.

Leasing fees may vary, but you can usually expect either a flat fee of

a few hundred dollars or a percentage of the rent, such as half of the

monthly rental rate.

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Part I: So You Want to Be a Landlord?

A friend of mine who’s a mechanical engineer by profession was relocating to

another state and wanted to retain his beautiful suburban home in case he was

ever transferred back to the area. He inquired into the cost of hiring a profes-

sional management firm and was shocked by the wide variation in management

fees quoted. So he began asking more questions of one prospective manage-

ment company and learned that this particular property manager was already

overseeing more than 170 other rental units and homes. My friend quickly cal-

culated that this property manager would only be able to spend an average of

one hour a month on the management of his rental home, including rent collec-

tion, accounting, tenant calls, property inspections, and all the other property

management duties — for a management fee that was quoted at 10 percent, or

over $150 per month. Be sure you know how many other rental properties will

have a claim on your property manager’s time before you sign up!

Making sense of management agreements

The management agreement is a pivotal document; it spells out the obliga-

tions of the property management company to you, the client. Be sure to

study the fine print — it’s tedious but necessary in order to avoid unpleas-

ant surprises. Even the management agreements available through state and

national real estate organizations can contain clauses that are clearly one-

sided in favor of the management company.

For example, many management agreements call for the property manager to

collect and keep all the income from applicant screening fees, late charges,

or returned check charges. Of course, property managers justify this policy

on the basis that they incur additional time and costs when handling such

situations. But these fees should belong to you, because you want to give

the property manager a financial incentive to fill your unit with a tenant who

pays rent on time and cares for the property. A management fee based on

actual rents collected is a better arrangement.

Read on to find out what other nuggets may be hidden in the fine print of your

management agreement — and how to protect your investment:

 The “no management fee charged when the unit is vacant between

tenants” line: Although this seems like an arrangement that saves you

money, especially when rental revenues aren’t coming in, the property

manager can rush to fill the vacancy without properly screening tenants —

and a destructive tenant can be worse than no tenant in the long run.

 The “hold harmless” clause: This clause protects the property man-

ager from liability for his own errors in judgment or the mistakes of the

workers the firm sends to your rental unit. One solution is to include a

“reasonable care” provision so the property manager is motivated to

be diligent in his management and avoid workers he knows have had

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Chapter 3: Managing Your Property Yourself or Hiring a Pro

problems in the past. Your agreement should also mention such obvious

requirements as informing you of what’s happening with your rental

property.

 The long-term management contract request: Some property management

companies request long-term management contracts that can’t be can-

celled or can only be cancelled for cause. Avoid signing any property

management contract that can’t be cancelled by either party with or

without cause upon a 30-day written notice. A property management

company that knows it’s only as good as its most recent month’s per-

formance will stay motivated to treat your property with the time and

attention needed to get top results.

 The confusing language trick: If the property manager won’t agree to

reasonable clarifications of the contract language or a complete list of

the services provided for his fee, he may not go out of his way to help

you later. Consider this refusal a warning sign and find a property man-

agement company willing to accept your reasonable terms.

 The “I’ll use my own agreement that suits my best interests” maneuver:

Many property managers use their own proprietary agreements written

strictly in the best interests of the property management company. So

be sure to have your attorney review this agreement very early in the

discussions with your potential property manager.

Make sure all your concerns are addressed in the management agreement. You

need to know exactly what weekly or monthly reporting the company provides,

when your property expenses will be paid, and who’s responsible for payment

of critical items like mortgages, insurance, and property taxes. Leave nothing to

chance.

I include some sample property management agreements on the accompany-

ing CD. You can use them to better familiarize yourself with these contracts,

or you can see which one (or even combine elements into a new agreement) is

best suited to your rental properties and your personal situation. Ultimately,

you can propose your property manager sign your agreement, but only after

you have it reviewed by an attorney.

Being aware of the tax consequences

As a rental property owner, you’re running a business and must file Schedule

E with your federal tax return. The tax laws allow your rental housing busi-

ness to deduct all operating expenses, including the costs of advertising,

maintenance, payroll, insurance, property taxes, and management fees, whether

paid to yourself or a property management firm. Note: Federal and state tax

codes change from year to year, so discuss your personal tax situation with

your accountant or tax preparer in advance.

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Part I: So You Want to Be a Landlord?

Although your expenses are deductible, they erode your net income from your

property. If your annual expenses are greater than rent revenues, you may find

that you can use those losses to help ease the tax burden from your full-time

job or other sources of income unrelated to your rental property. But a loss is

a loss, and trying to keep your rental property in the black is still a good idea,

even if you have to pay some taxes on the income.

The IRS’s passive loss rule states that all real estate rental activities must be

treated as passive with an exception that some taxpayers are allowed up to

a $25,000 deduction. However, real estate investors who can be classified as

real estate professionals are permitted to deduct all their rental real estate

losses from their ordinary income, such as current employment income

(wages, commissions), interest, short-term capital gains, and nonqualified

dividends. See Chapter 19 for more information on whether you meet the

stringent IRS requirements to qualify as a real estate professional.

Even though federal real estate taxation laws consider most real estate activi-

ties passive rather than active investments, definite tax advantages exist for

those individuals who’re actively involved in the management of their rental

properties. The definition of actively involved allows you to hire a property

management firm and still take advantage of the tax write-offs available for

rental income property, as long as you’re involved in setting the rents and

policies for the property.

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Chapter 4

Taking Over the Proper ty

In This Chapter

 Understanding what to look for before the deal is final

 Helping existing tenants through the transition process

omewhere during the process of thinking about investing in rental property,

you may have considered acquiring a rental property already occupied

with tenants. On the surface, in fact, this kind of opportunity looks like a posi-

tive, because you don’t have to advertise and select tenants yourself — at least

not right off the bat. But just how positive an experience you have taking over

an occupied rental property depends on the quality of your tenants. Some

real estate investors actually prefer to acquire vacant rental properties so

they can renovate the units and select their own tenants.

In this chapter, I assume you’ve made your decision to purchase a rental

property, and I focus on some of the important issues involved in taking over

that property. Here you find out how to begin the all-important task of imple-

menting your own policies and procedures with the existing tenants, who

may be living under an entirely different set of rules. The proper procedures

for taking over a rental property actually begin before you’re legally the new

owner. Ensuring your transition goes smoothly requires some know-how, and

in this chapter I give you exactly that.

For more information on evaluating potential rental property acquisitions,

proper due diligence steps, and property inspections, plus ideas on how

to hold title to your rental properties, check out Real Estate Investing For

Dummies by me and coauthor Eric Tyson (Wiley).

Knowing What to Get Upfront

If you’re thinking about buying a rental property, you need to start by investi-

gating all aspects of it and its current tenants, if any. After all, no one is going

to represent your interests as well as you. During the due diligence period,

which is when your escrow (an account for funds and documents held by a

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Par t I: So You Want to Be a Landlord?

neutral third party in a real estate transfer until all the conditions have been

met, per the written instructions of the seller and buyer) and purchase are

pending, put on your Sherlock Holmes cap and ask lots of questions. Don’t

be shy. Talk to the tenants, the neighbors, the local government officials, and

the property’s contractors or suppliers to be sure you know what you’re get-

ting. When in this situation, remember my favorite motto: “No surprises.”

Most sellers are honest and don’t intentionally withhold information or fail to

disclose important facts; however, the old adage “Buyer beware” rings par-

ticularly true in the purchase of rental real estate. Resolving questions and

issues now through regular communication with your seller eliminates some

very unpleasant and possibly contentious disagreements with your tenants

in the future.

The due diligence period may be your best or only opportunity to seek

adjustments if important issues have been misrepresented. When you sign

your name on the dotted line, the deal’s done. You can’t go back and ask the

seller where the tenant’s security deposit is. So even though taking over your

new rental property can be chaotic, don’t fall into the trap of just verbally

verifying the facts. Confirm all information in writing and begin setting up a

detailed filing system for your new property.

In the following sections, I cover some items to make sure you have in writ-

ing before the deal is final. You can also check out the Property Takeover

Checklist and Exterior Property Inspection forms on the accompanying CD.

A list of personal property

included in the sale

Take an inventory of all the personal property included in the sale. This

list may include appliances, equipment, and supplies owned by the seller.

Remember: Don’t assume anything is included in the sale unless you have

it in writing and be sure to verify that all items indicated are actually at the

property before you close the deal. One of the most significant disputes can

arise if there’s a misunderstanding about who owns the appliances in the

rental unit. For example, if the seller says all the refrigerators belong to the

rental property owner (as opposed to the tenants), you want to verify that in

writing with each tenant. Otherwise, you run the risk of a serious dispute or

loss in future years as tenants take appliances when they leave, claiming that

fancy fridge belongs to them.

Be sure to record and maintain a list of all your appliances’ serial numbers,

because some ingenious tenants have been known to sell the new appliances

in their rental unit and replace them with used appliances. Watch out for this

tacky tactic when there’s a change in ownership or management.

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Chapter 4: Taking Over the Property

A copy of all tenant files

Make sure you have all the appropriate paperwork in the tenant files. These

documents include rental applications, current and past rental contracts, move-

in inspection checklists, full payment history and any rent increase documents,

all legal notices, maintenance work orders, current contact information, and

correspondence for each and every tenant.

A seller-verified rent roll and list

of all tenant security deposits

A rent roll is a listing of all rental units with information on the tenants’ names,

move-in dates, current and market rents, and security deposits. Be sure you

get a written seller statement that no undisclosed verbal agreements, conces-

sions, or side agreements have been made with any tenant regarding rent or

security deposits.

When acquiring an occupied rental property, be sure you follow state or local

laws in properly handling the tenant’s security deposit. (See the accompany-

ing CD for more info on state laws concerning security deposits.) Most state

laws require the seller and/or purchaser of a rental property to advise the ten-

ants in writing of the status of their security deposit. These laws usually give

the seller the right to either return the security deposit to the tenant or trans-

fer the deposit to the new owner. Here’s why you want the latter to happen:

 If the seller refunds the security deposits, you now have the challenge

of collecting them from tenants already in possession of the rental units.

Avoid this scenario by strongly urging the seller to give you a credit for

the full amount of the security deposits on hand in escrow and have

each tenant agree in writing to the amount of the security deposit trans-

ferred during the sale. Close the loop by sending each tenant a letter

confirming his or her security deposit amount.

 If your state doesn’t require you to hold the tenant security deposits in a

separate bank account, your credit from the seller lowers the amount of

funds required at the close of your escrow. Of course, you must be able

to refund the remaining balances (after taking proper deductions) of any

tenant security deposits when the individuals move out.

Without written proof to the contrary, some crafty or desperate tenants may

later claim they had a verbal agreement with the former owner or manager

for a monthly rent credit or discount for maintaining the grounds, or that they

were promised new carpeting or another significant unit upgrade. If this sce-

nario happens to you, offer to get the former owner or manager on the phone

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Par t I: So You Want to Be a Landlord?

to verify the tenant’s story. In my experience, when you offer to verify the

story, the tenant typically begins to backpedal, and the truth comes out. But

to avoid any surprises, obtain a written statement from each tenant indicat-

ing that no verbal agreements exist, and no promises have been made by the

former owner.

A copy of all required governmental

licenses and permits

Rental property owners in many areas are now required to have business

licenses or permits. Contact the appropriate governmental office in writing

and make sure it’s properly notified of the change in ownership and/or bill-

ing address. Often these governmental entities have stiff penalties if you fail

to indicate the change in ownership in a timely manner. The office eventu-

ally learns of the change, because it monitors the local recording of deeds

and receives notification of changes in billing responsibility from local utility

companies. Don’t delay the inevitable. Make sure you have current copies of

all state and local rental laws and ordinances affecting your rental property.

Check out Appendix B and the accompanying CD for resources for state

landlord-tenant laws.

A copy of all the latest utility bills

Get copies of all account and payment information for every utility that pro-

vides services to the rental property. These utilities may include electricity,

natural gas, water/sewer, trash collection, telephone, cable, and Internet

access. Prior to the close of escrow, contact each of the utility companies

and arrange for the transfer of utilities or change in the billing responsibility

as of the estimated escrow closing date. If provided with sufficient advance

notice, many utility companies are able to have the final meter reading and/

or billing cutoff coincide with the close of escrow, which prevents the need

to prorate any of the utility billings between the owners.

Let me reiterate: Verifying the accuracy of all utility bills is extremely important.

One of my expert witness cases involved a water utility improperly charging a

property owner for sewer charges related to a water meter used only for irriga-

tion. (Some water utilities allow for “irrigation only” meters that are exempt

from sewer charges because the water never enters the sewer system.) In this

case, the utility company had been collecting sewer fees for many years until

the discrepancy was brought to its attention. The property owner did receive

lower billings in the future, but state law protected the municipal utility company

from refunding any overcharges beyond the previous 12 months. The owner’s

thousands of dollars in overpayments were a rather expensive lesson.

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Chapter 4: Taking Over the Property

Some consultants actually offer to review utility bills to ensure you’re being

charged the proper amounts based on the correct billing rates. These profes-

sionals are usually compensated on a contingency basis through a percentage

of the savings they’re able to achieve.

A copy of every service

agreement or contract

Make sure you obtain copies of all the service agreements and/or contracts.

These documents may include agreements made with maintenance landscap-

ers, pest control services, boiler maintenance services, laundry leases, and

other providers. Review all current contractors and service providers the

current owner uses.

If you plan to terminate the services of a particular contractor or service

provider, the seller may be willing to voluntarily send a written conditional

notice of termination indicating that, should the property sell as planned, the

provider’s services will no longer be needed as of the close of escrow. You

are then free to make your own plans for services and can even renegotiate

with the current company for better terms. Of course, if you find the seller

already had favorable pricing from the contractors or service providers, you

may be able to negotiate the same terms.

A copy of the seller’s

current insurance policy

One of the most important steps you handle when taking over your new rental

property is securing insurance coverage. You need to make sure you have the

proper insurance policy in place at the time that you legally become the new

owner. Although the seller’s policy won’t protect you in any way, request a

copy of her policy or declaration of coverage, because this information can be

very helpful to your insurance broker or agent when analyzing the property to

determine the proper coverage you may need.

Always seek the advice of a professional insurance broker or agent when obtain-

ing insurance coverage. Have your agent run a loss history on your new property

to determine whether any losses have been claimed. You may find that the prop-

erty has had significant claims in the past, which impacts your ability to find rea-

sonably priced insurance coverage. The loss history can also show some of the

problems that have occurred at the property, including several small instances

that can indicate a larger problem, such as plumbing leaks.

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Par t I: So You Want to Be a Landlord?

Although you may trust your insurance broker or agent implicitly, don’t allow

your escrow to close until you have written documentation confirming that

your insurance coverage is in force. Even though it may seem improbable, many

times a property suffers a catastrophic loss or liability claim a mere matter of

hours after it changes hands, and the new owner’s insurance coverage isn’t yet

in place.

When you receive the current insurance information, take steps to verify the accu-

racy of all records. If certain representations about the types and amounts of

coverage are made verbally but not given in writing, then you need to protect

yourself by sending written documentation to the seller and all brokers and

agents to confirm any information you’ve received. This step can be important

in preventing future disputes about the representations made by the seller or

any of the brokers or agents.

Working with the Current Tenants

during the Transition

If you’re like most rental property owners and you’re acquiring property

that’s already occupied, the tenants are probably well aware of the pending

A final walk-through can save you headaches

Before you close escrow, you want to take a

final walk-through to make sure the property

hasn’t been damaged prior to closing. I was an

expert witness in a case where the new buyers

learned this lesson the hard way because they

didn’t visit the rental home before closing.

After the sale was complete, the new buyers

excitedly went to see their new rental prop-

erty, which had sat vacant for nearly a week

during escrow. They were shocked to find the

rental home completely flooded and severely

contaminated with mold. The buyer sued the

seller, claiming that someone had intentionally

or inadvertently left the water supply line valve

to the refrigerator ice maker open, allowing

water to cover the entire first floor. The buyers

were unable to prove that the damage occurred

while the property was still owned by the seller,

so the seller’s insurance company denied the

claim.

Ultimately the buyers’ insurance company

agreed to pay for some of the damage, but not

before the buyers went through more than two

years of expensive and emotionally draining

litigation and lost a lot of money because the

property sat vacant the entire time. Everything

could’ve been avoided if the buyers had simply

inspected the property just before the close of

escrow and stopped the sale until the damage

had been addressed.

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Chapter 4: Taking Over the Property

ownership change. Tenants are typically full of apprehension when their rental

unit is changing ownership, not because they think you’ll be an unreasonable

landlord, but because of the uncertainty of change. So be sure to begin your

relationship with your tenants on a positive note. In the following sections, I

guide you through the transition process step by step.

Meeting with the tenants in person

When you first acquire your new rental property, contact your tenants in

person and reassure them that you intend to treat them with respect and

have a cordial yet businesslike relationship. Deal with your tenants’ ques-

tions honestly and directly. The most common concerns are usually the

potential for a rent increase, the status of their security deposit, the proper

maintenance or condition of their rental unit, and the continuation of certain

policies, such as allowing pets. If you’re not honest with the tenants, you’ll

lose credibility if you later decide to implement changes that you didn’t

acknowledge up front.

Provide your tenants with a letter of introduction during this brief in-person

meeting. This letter provides your contact information, plus explains your rent

collection policies, the status of tenants’ security deposits, and the proper

procedures for requesting maintenance and repairs.

Be sure to request an opportunity to perform a property walk-through with

each tenant. Let the tenant know whether you’ll be implementing your own

standard lease or rental agreement form as well.

Inspecting the rental unit

Although you most likely had a brief chance to view the interior of the rental

unit during the due diligence period before escrow closed, walking through

again with the tenant now that you’re the owner can be helpful. However,

know your state laws. In most states, tenants don’t have to let you enter their

rental units unless you have a legal reason and have given proper advance

notice. If you set a voluntary appointment, the tenant knows you’re coming

and can prepare.

Don’t just knock on the door and expect to walk through your tenant’s rental

unit. But if you’re already at the rental property delivering your letter of intro-

duction, you can schedule a mutually convenient time to meet. Some tenants

will be glad to meet with you right then, but don’t necessarily count on that.

Giving your tenants time to think about any issues they’d like to discuss is

beneficial for you both.

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Par t I: So You Want to Be a Landlord?

The former owner of the rental property may have had a policy of document-

ing the condition of the rental unit at the time the tenant took possession of it.

If so, you may want to compare the noted condition on the Move-In/Move-Out

Inspection Checklist (see Chapter 11) when you actually walk through the rental

unit. If proper documentation of the move-in condition wasn’t made, consider

preparing such information during your walk-through. This information allows

you to establish some sort of baseline for the unit’s condition to use upon the

tenant’s move-out, which then helps you determine the proper amount of the

security deposit to return to him.

Using a new lease or rental agreement

Another first step to take as the new owner of a rental property is to begin

converting your existing tenants to your own lease or rental agreement. If

you have a single-family rental or a small rental property, implementing your

own rental agreement as soon as legally allowed is relatively easy. However,

with larger rental properties, you may want to gradually transition to a new

contract upon tenant turnover.

Your tenants already have one of the following:

 A valid written lease

 An expired written lease that has become a month-to-month rental

agreement

 A written month-to-month rental agreement

 A written rental agreement for some period of time less than a month

 A verbal agreement

Although you may want to make some changes in the terms or policies, when

you acquire an occupied rental property, your legal and business relationship

is already established by whatever agreement the tenants had with the former

owner. Wait until the expiration of the contract to change the terms — or

provide the tenant with proper legal notice of any proposed changes.

Consider the potential impact of making significant changes in the rental rates

or policies immediately after you acquire the rental property. For example,

although you may have strong feelings against allowing pets on your rental

property, your tenants may have pets already. Although you legally have

the right to implement your no-pet policy upon lease renewal or upon giving

proper legal notice, you’re almost guaranteed a vacant rental unit if you do so.

Impose your policies over a reasonable time frame, but be sure you’re aware

of the potential financial consequences in the short run.

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Chapter 4: Taking Over the Property

The sooner you begin to convert your new property to your rental contracts,

the better. Establish uniform policies at all your rental units so the terms and

policies are consistent for all your tenants. This action is extremely important

to avoid possible Fair Housing violations, as discussed in Chapter 10.

The tenant information the seller provided you during escrow may be outdated.

One quick way to update your records is to have the tenants voluntarily com-

plete your rental application form. In many states, you may not have a strong

legal argument for requiring existing tenants to provide this information; how-

ever, many tenants will understand your reasoning and not mind. Other tenants

may be reluctant to complete an entirely new rental application. Even if you

receive initial resistance, seek this updated information prior to renewing any

lease. You need to be able to properly determine the financial qualifications of

your tenants, particularly if you anticipate future rent increases.

Evaluating the current rent

When you acquire a rental property, part of your research is to establish its

fair market rental value. If a tenant’s current rent is below market value, one

of your toughest decisions as the new owner of a rental property is how to

handle rent increases.

As the new owner, you often have much higher mortgage payments and typi-

cally higher expenses to make necessary repairs and upgrades to the prop-

erty than the last owner did. Some tenants get very upset and antagonistic

about any rent increase, however, and you won’t be able to appease them.

Fortunately, the majority of tenants just expect to be treated fairly and honestly.

They understand you may have higher expenses and will reluctantly accept a

rent increase as long as two basic conditions are met:

 You don’t raise the rent beyond the current market rent for a compa-

rable rental unit in the area. Give tenants documented information on

comparable rentals in your area to show them you’re not asking for an

unreasonable rent.

 You’re willing to make basic repairs to the rental unit. Don’t ask tenants

to shell out extra cash without proving you’re committed to maintaining

and even improving the property.

Seek cost-effective improvements or upgrades that enhance the rental unit.

Most tenants just want to be sure they’re receiving some of the benefit of

paying higher rent. And if you’re asking for more rent, be willing to reinvest

a portion of the rent increase into improving the rental property. Clean the

carpet, repaint the interior of the rental unit, or send in a maintenance person

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Par t I: So You Want to Be a Landlord?

for a few hours to repair the miscellaneous items that need attention. Of course,

if you have a very good and stable tenant, you may want to consider more signifi-

cant upgrades to the rental unit. Replacing the carpet, installing a new appliance

or countertops, or adding a ceiling fan and microwave oven may be an incentive

for your golden tenant to sign a new lease at a higher rental rate.

Although tempting, be wary of making significant renovation or repairs to the

rental property before the close of escrow. If the sale of the property doesn’t

go through as planned, you may have spent considerable sums to upgrade

the seller’s property without any recourse.

Buying unoccupied rental property

The takeover procedure for an unoccupied

rental property or one that has vacant rental

units isn’t much different than the procedure for

taking over an occupied property. Many times

you may actually prefer to have the property

vacant so you can quickly implement a plan

to upgrade and get the property rent-ready as

soon as possible. If you want an occupied rental

property vacant upon the change of ownership,

make the vacancy of the rental unit a condition

for the close of escrow. Remember: After you

own the rental property, every day the rental

unit sits vacant is lost income you can never

recoup, so you want to work diligently during

the escrow time frame to make as much prog-

ress as possible.

Begin your marketing and advertising of the

rental property to coincide with the close of

escrow and completion of the rental unit ren-

ovation. Time is of the essence if you want to

minimize any lost rent.

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Part II

Renting Your

Property

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In this part . . .

he chapters in this part guide you through the pro-

cess of actually renting your property — everything

from getting your rental unit ready to setting the rent and

advertising. I also give you some great tips for showing

your property to prospective tenants and fill you in on

the importance of good tenant screening policies. So if

you have a vacancy on your hands — or you will soon —

read on.

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Chapter 5

Getting Your Rental Property

Ready for Prospective Tenants

In This Chapter

 Knowing how to get the most from your property through internal and external

improvements

 Developing a system for being rent-ready

 Making sure safety is a priority

 Working with a professional to prep your unit for rental

ou may think of preparing your rental property as one of the most

basic property management functions, but actually doing so is critical

to your overall success. Because vacant rental units don’t generate rental

income, you need to fill your vacancies with good, stable, rent-paying ten-

ants as quickly as possible. But how? By making sure the interior, exterior,

and grounds of your vacant rental units are clean and in rent-ready condition

when you show them to prospective tenants.

In this chapter, I help you figure out whether you need to upgrade your rental

unit before a new tenant moves in. And I fill you in on the proper methods

of preparing the rental unit so you can get the kind of tenant you want in as

little time as possible.

Coming Up with a Plan

to Handle Vacancies

The first step in getting good tenants is to develop a plan to get each vacant

unit in top condition. Ideally, your vacating tenant will be cooperative and

allow you access to the rental unit so you can determine what items need to

be cleaned, repaired, replaced, or even upgraded. As you walk through the

unit, take lots of notes on its condition and what needs attention in order to

get it ready to rent again. Your notes are the foundation for a detailed plan to

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Par t II: Renting Your Property

help you attract several qualified rental prospects who want to lease the unit

at the rate you’re seeking. The next few sections can help you put that plan

into place.

Not everyone appreciates or values the same features in a rental unit as you.

This is a rental property and, just as the old saying states, “Beauty is in the

eye of the beholder.” The features and amenities that appeal to you may not

be worth the extra investment from the perspective of your target tenant

market. For example, although you prefer expensive travertine floor tiles

in your own home, you may soon find that more durable flooring products

can tolerate the heavier wear and tear of rental units much better. Although

cleanliness has universal appeal, some features such as ceiling fans and micro-

waves will appeal more to some prospective tenants than others.

Considering renovations and upgrades

Almost every rental unit has the potential for renovation or upgrades, giving

you the opportunity to create real value in your units. When you have a

dated rental unit, you have to decide whether to renovate it and increase the

rent or leave it be and settle for the same old rent. Be sure to evaluate the

cost of the renovation or upgrade versus the rent increase you can get out of

a particular improvement before you start renovating. You need to be sure

you’ll get your money back from your investment. The following sections

help you figure out how much to renovate, what features prospective renters

like to see, and what you need to do to stay within the law.

Not convinced renovating is worth thinking about? You may think you’re

saving time and money by allowing a new tenant to lease a rental unit that

hasn’t been properly prepared. After all, if Bob doesn’t mind that the unit isn’t

rent-ready, why should you? Unfortunately, this strategy isn’t as problem-free

as it seems on the surface. In fact, it’s a big mistake. Why? Because the kind

of tenant you attract with a rental unit that hasn’t been properly prepared is

someone who has lower standards and may even be desperate. New tenants

who accept a dirty and poorly maintained rental unit surely won’t make any

extra effort to leave the property in good condition when they depart.

Determining whether to renovate: What’s your return?

When you’re considering making renovations and upgrades, you need to

understand what they can and can’t do for you. Many times renovations and

property upgrades result in increased net income and higher property value.

However, sometimes the renovations may not justify the investment.

To consider the payback of a proposed improvement, calculate the total

installed cost of the upgrade and divide your answer by the monthly increase in

rental income. For example, if you modernize your rental property and install a

dishwasher for $400 and consequently increase your monthly rent by $25, the

payback is 16 months. Whether 16 months is an acceptable payback and worth

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Chapter 5: Get ting Your Rental Property Ready for Prospective Tenants

the initial investment of $400 is determined by each owner. Just remember that

you’re not only increasing your monthly gross income but also identifying your

increased property value as a result of higher net income, a value that makes

your rental property worth more to a buyer when you look to sell your rental

property.

Every real estate investor has different expectations, but generally any payback

of less than 24 months is good, especially when you look at the increase in prop-

erty value that accompanies increased net income. See Real Estate Investing For

Dummies by me and coauthor Eric Tyson (Wiley) for more discussion of ways to

increase the value of your rental property.

Eyeing what prospective renters want

Some tenants value certain improvements more than others. So the main

question is: What features and improvements do most prospective renters

want (which in turn can give you more money in terms of a higher rent)? You

can’t come up with an exact answer to what amount of increased rent a par-

ticular upgrade will generate. For example, a new granite countertop in the

kitchen or new light fixtures in the dining room or bathroom have a different

impact on each prospective tenant; some are willing to pay more for those

amenities, and others aren’t.

Feeling a bit confused about what direction to take to figure out the features

prospective renters want? Never fear! The following tips can guide you:

 Keep in mind what features and strengths your prospective renters will

find in competitive rental units. Look for outmoded or outdated features

in your own unit. Perhaps most of your competition offers dishwashers,

but you don’t have one in your unit. You may want to install a dishwasher

so that you remain competitive. Or maybe your unit has a very old dining

room light fixture that you can easily replace with a modern light fixture

or ceiling fan with a light kit. Another simple upgrade is to replace your

old electrical switches and outlets for a more modern look. New hardware

on the kitchen cabinets is also a low-cost upgrade. Pay particular atten-

tion to those items that are quick, easy, and inexpensive to replace, but

can really improve the overall look of your rental unit.

 When upgrading or replacing your current appliances, standardize

the brand and model wherever possible. This advice is particularly

true for certain appliances that have modular components that can be

easily replaced to give the appliances a new look and extended life. Stoves,

ranges, ovens, refrigerators, and washers and dryers fit into this category.

When other appliances such as microwaves, dishwashers, and garbage

disposals fail, it’s simply more cost-effective to replace the units. So for

this latter category of appliances, you want to take advantage of appliance

vendors who have certain models on closeout or special pricing. Bonus:

Tenants generally don’t pay that much attention to the brand of the

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Par t II: Renting Your Property

garbage disposal, so you may as well take advantage of any specials.

Buying a discontinued brand or model of a stove, however, may save

you money up front but cost you much more in the long run, when you’re

unable to find replacement parts.

If you have an older rental property, renovating may be more difficult due to

some of the hazardous materials used in your unit’s original construction.

Hazardous materials like asbestos or lead-based paint aren’t cheap to remove.

Often, you’re better off just leaving the materials in place as long as they

haven’t been disturbed. Consult with hazardous materials removal experts

before determining the extent of the renovation and the proper methods to

ensure that all hazardous materials are safely maintained. Also, check with

your local building code enforcement or health department for requirements

regarding the proper handling and disposal of hazardous materials.

Obtaining the appropriate permits

When you’re considering renovations or upgrades to your rental unit, make

sure you get the appropriate building permits or licenses as required in your

area. You don’t need to be a code expert, but having a general understanding

of both local housing codes and state housing laws is important. Evaluate your

property and ensure that the planned work will meet current building codes.

Every state and many local municipalities have building codes that dictate the

minimum standards to which all buildings must comply. Often, they have hous-

ing, fire, and health and safety codes as well. Reviewing rental housing industry

publications can alert you to significant changes in these codes.

If inspectors find that your rental property isn’t in compliance with the

proper codes, then you may receive violation notices and potentially expen-

sive fines. Building codes are regularly updated and changed, and typically,

properties aren’t required to meet the new code requirements unless the

properties are renovated, and new building permits are obtained. Be sure

you or your contractors are aware of the code requirements and incorporate

the necessary code-compliance measures in your renovations to ensure the

safety of your tenants and to protect yourself from violations and fines.

Paying attention to the exterior

and common areas

You want to make sure your rental prospects’ first impression of your rental

property is a positive one. If the property’s exterior and grounds don’t look

nice, your prospect won’t even bother to see the interior — where you’ve

just installed new appliances and high-quality carpeting.

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Chapter 5: Get ting Your Rental Property Ready for Prospective Tenants

A poor first impression of your rental unit’s exterior is hard to reverse —

regardless of how great the inside may look. That’s why you want to make a

great first impression. In order to do so, you need to think about curb appeal,

or how your property looks to a prospective tenant when she first visits.

To attract tenants who’ll treat your property properly and stay for years, keep

the following suggestions in mind:

 Start at the street and carefully critique your property as if you were

entering a contest for the best-looking property in your area. First

impressions are critical, and one of the key areas seen by all prospective

tenants is the front entry. Make sure the entryway is clean, well-kept, and

well-lit. Clean the front door or apply a new coat of paint or stain. Buy a

new welcome mat. Remove or replace a broken screen door or mailbox.

Also, check the driveways and walkways and make sure they’re as neat

and tidy as possible.

 Be sure your grounds and exterior areas are sparkling clean and the

landscaping is well-maintained. Believe it or not, you can renovate your

grounds inexpensively by picking up trash and junk, removing weeds,

properly watering the grass, and using the right fertilizer. A nice green

lawn, healthy shrubs, and shade trees enhance any rental property.

Savvy rental property owners know that landscaping is one of the most

cost-effective ways to significantly upgrade a unit.

 Check all patios, balconies, and entryways. They should be clean, and

the railings should be secure.

 Make sure the building structure is presentable and inviting. Although

major architectural changes are often cost-prohibitive, you can do a lot

with a little paint, landscaping, and cleanup. The good news is that these

items generally don’t cost much compared to the positive benefits you

gain. Some specific exterior improvements to consider are ground-level

or hanging planters, brass house numbers, awnings, or freshly painted

fence or house trim. See Flipping Houses For Dummies by Ralph R.

Roberts and Joe Kraynak (Wiley) for examples of exterior and landscap-

ing renovations that can completely change a property’s curb appeal

and even reposition tired rental properties.

Making sure the interior is up to snuff

The most qualified, stable renters always have choices, no matter how good

or bad the rental market. You’re in competition for these excellent tenants,

and you need to make sure your rental unit stands out from the rest. A pro-

spective tenant’s positive first impression of your rental property’s exterior

soon disappears if its interior isn’t just as sharp and well-maintained.

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Par t II: Renting Your Property

Don’t show your rental unit until it’s completely rent-ready. Prospective ten-

ants often have a hard time seeing a unit’s potential. If you show them a dirty

rental unit, they’ll always think of it that way. Although you may lose a couple

of potential showing days by taking time to prepare the unit, you benefit in the

long run by signing a more conscientious tenant. Trust me when I say that ten-

ants who are more careful in the selection of their new rental home are plan-

ning to stay longer, and this is exactly the type of tenant you want.

When preparing a rental unit for a new tenant, don’t overlook or forget a

single item. I recommend using an inspection checklist (like the Interior Unit

Inspection Checklist included on the CD) to guide you through the process

and assist you with final inspection. Here’s a list of what to go over in prepara-

tion for your new tenant:

 When you have legal possession, remove any personal possessions

and trash left behind by the previous tenant. Be sure that you follow

any state or local laws providing the former tenant an opportunity to

reclaim any abandoned personal property.

 Check all plumbing (toilets, faucets, and pipes) for proper operation.

Make sure nothing leaks, the plumbing has the proper pressure, and

everything drains adequately.

 Test all appliances for proper operation. Run the dishwasher through a

full cycle. Be sure the oven’s drip pan, broiler pan, and racks are included.

Curb appeal in a community association

If you own a rental unit in a community interest

development (CID), commonly referred to as a

community association or homeowners’ asso-

ciation (HOA), the responsibility for the mainte-

nance and repair of the common areas typically

falls to the association. Contact the association

or its property manager to advise someone

of any common area concerns you have. The

association has a vested interest in ensuring

the proper maintenance of the premises, as

well as maintaining a sense of desirability for

owners and tenants, but it may require some

persuasion to take action.

Community associations are nonprofit enti-

ties run by volunteer boards of directors who

are often reluctant to assess their owners and

spend money to upgrade or modernize aging

properties. Rarely do you find an association

with plentiful reserves and well-maintained

property unless it has strong leaders willing to

make beneficial upgrades a priority. So you may

need to get involved as a member of the asso-

ciation and use your expertise to demonstrate

to the other owners (many may be owner-

occupants) that proper maintenance can actu-

ally reduce long-term operating costs as well

as maintain higher property values, which is a

concern to all owners.

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Chapter 5: Get ting Your Rental Property Ready for Prospective Tenants

 Try out all hardware. Rekey or change the locks and make sure they’re

operational. Pay attention to all latches and catches, doorknobs and

pulls, doorstops, and sliding doors.

 Check all windows, window or insect screens, and window coverings.

Verify that they’re clean, unbroken, secure, and properly operational.

Test all window locks to be sure they work as well.

Window treatments can make your rental property look great. After all,

what’s not to like? You control the appearance of your rental property from

the street, and your tenant receives attractive and functional window cover-

ings. The various window treatments are now very affordable and can really

make a difference, so be sure to explore all your options and find out what’s

most desirable in your local area. Choose window coverings that appeal to

your prospective tenants and are easy to maintain. I recommend vertical

blinds or drapes, because they’re much easier to maintain and clean than

miniblinds.

 Inspect all walls, ceilings, and baseboards. Confirm that the paint

and/or wall coverings provide proper coverage, without holes, cuts,

scratches, nail pops, or bad seams.

 Examine all floor coverings. Make sure floors are clean and in good

condition. All flooring should be properly installed, without bad seams.

 Check all bathrooms. Thoroughly clean the toilet, tub, shower, sink,

mirrors, and cabinets. Check the toilet paper holder and towel bars to

be sure they’re clean. Put a paper sanitary ring around each toilet seat

and a new roll of toilet paper in each bathroom.

 Look over all closets and storage areas. Clean rods, closet dowels,

hooks, shelves, lights, floors, and walls.

 Examine all counters, cabinets, doors, moldings, thresholds, and metal

strips. Verify that they’re clean, fully operational, and present no hazards.

 Test smoke detectors, lighting, and electrical outlets, including all

ground fault circuit interrupters (GFCI, also referred to as GFI) and

circuit breakers, for proper operation. Make sure all electrical compo-

nents work at move-in; it’s then the tenant’s responsibility to notify you

of any problems during the tenancy.

 Check the fireplace. If your unit has a fireplace, clean out ashes and

debris. Have the chimney flue inspected periodically based on the

amount of usage.

 Inspect the heating and air conditioning unit(s) for proper operation.

Be sure the thermostat, filters, vents, and registers are all in working

order. Contact a professional if necessary.

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 Perform a final walk-through of the entire rental unit for appearance

and cleanliness. Be sure to recheck the unit every few days because dust

can settle quickly in a vacant unit. I’ve also seen an unpleasant surprise in

the form of dead pests or insects that took their time expiring from recent

pest control efforts. Nothing stops a good conversation with a great pro-

spective tenant faster than stumbling upon a dead bug!

Preparing Your Rental

Unit the Right Way

One of the best ways to maximize your rental income is to develop a system

to improve your efficiency by completing your rent-ready process in mini-

mum time. But you may be so overwhelmed by the amount of work you need

to get done in the amount of time you have that you don’t stop to consider

the order you should do it in. I recommend you stick to the following order to

maximize your time and efficiency:

1. General cleaning

2. Maintenance, including repairs and upgrades

3. Painting

4. Final cleaning

5. Carpet or floor covering cleaning

General cleaning

As soon as the old tenants move out, clean the vacant rental unit. During this

initial cleaning, you should

 Remove all trash left behind by the former tenants, including any-

thing remaining in drawers, cabinets, and closets.

 Wipe down countertops and shelves.

 Sweep or vacuum the floors.

 Wash the windows, window coverings, and doors.

 Clean out the storage areas, including the attic, basement, or garage,

as applicable.

If you can’t gain access before the tenants vacate, now’s the time to walk

through the unit and come up with your plan for getting it ready to rent again.

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Chapter 5: Get ting Your Rental Property Ready for Prospective Tenants

Maintenance and repairs

Maintaining and inspecting everything in your rental property while it’s

vacant is important. Properly completing this inspection doesn’t mean

you need to be a certified repair technician; just be able to ensure that the

interior unit systems are operational for the standard day-to-day usage you

expect from your new tenants. If you aren’t certain what to look for or if any-

thing seems awry, then be sure to contact a repair professional who’s quali-

fied for the building system that needs inspecting.

The majority of the items requiring maintenance in your vacant unit are minor,

such as sticking closet doors, loose door knobs and towel bars, and burnt-out

light bulbs. But be sure to carefully and regularly evaluate the current condition

of all systems and equipment, including plumbing, electrical, appliances, and

heating, ventilating, and air conditioning (HVAC). Keep the following in mind:

Forget second chances when it comes

to showing a rental

Early in my property management career, I

learned a valuable lesson about the importance

of cleanliness and first impressions. I’d just

arrived at a rental property for a management

inspection and was speaking to the on-site

manager when a prospective tenant entered

the rental office and asked to see a vacant unit.

She was a local college student out apartment

hunting with her mother. I told my manager to

go ahead and show the unit, and explained I’d

just follow along if they didn’t mind.

Together we left the rental office. The property

grounds were very well-maintained, and the on-

site manager did a great job getting to know the

prospect’s needs and determining the right unit

to show. With the manager’s help, the prospec-

tive tenant and her mother decided on seeing an

upstairs unit, away from the street.

Everything was going great . . . until we got to

the actual unit. A dirty, cobweb-filled entryway

led us to an interior (that hadn’t been tidied in at

least a week!) where we could see a large tree

branch hanging precariously over the balcony

rail. Before seeing the unit, the prospective

tenant and her mother had been very posi-

tive, even discussing how soon she could get

approved and move in. Afterward, they stopped

asking questions, barely answered any, and

became very noncommittal.

Learn from my mistake: Remember that the

cleanliness of the rental unit is paramount and

never show a rental unit without having gone

through it yourself just prior to the showing.

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 Carefully inspect all plumbing fixtures. Look for leaky faucets, clogged

aerators, or running toilets. Test the angle stops or shutoff valves for all

toilets, washers, dishwashers, and faucets, including under each sink,

and look for signs of leakage. Even small leaks can be a major problem if

not detected and repaired quickly.

 Inspect and test the electrical components of the rental unit. Make

sure the circuit breakers or fuses are all in place and are operating prop-

erly. Replace burnt-out light bulbs and check light switches and outlets.

If possible, verify that the cable or satellite television and telephone

lines are working, too.

 Inspect each of the appliances and make sure that they’re operating

properly. Stoves and ovens contain modular parts, and you can replace

the burner drip pans and control knobs very easily, because replace-

ment parts are readily available for most major appliances. Run the dish-

washer through a cycle and look carefully for any signs of leaks around

the gasket or underneath near the pump housing.

 Conserve energy by turning off the water heater, furnace, and air

conditioning units at the breaker and setting the refrigerator/freezer

to low. Your turnover work should also include the cleaning or replace-

ment of all filters. This simple, low-cost item greatly improves the

energy-efficiency and lowers the wear on the equipment. Keep records

indicating the date the filters were changed and be sure to remind your

tenants when they should be changed again.

Tenants are becoming increasingly aware of the importance of conser-

vation and energy-efficiency when selecting their homes. If you install

water-saving fixtures, pilot-less ignition gas stoves and water heaters or

tankless water heaters, weatherproofing, insulated windows and doors,

and energy-efficient appliances, you’ll have a competitive advantage in

the rental marketplace. Be sure to emphasize your “green” efforts in pro-

moting your rental property.

 Check the pool/spa. If your property has a pool or spa, have a profes-

sional evaluate its condition and provide a written report documenting

the findings, including the state of the equipment and the water quality.

This evaluation establishes a baseline that can often head off any tenant

complaints down the road.

 Perform maintenance that will minimize the likelihood of pests. Caulk

all cracks around the windows, foundations, drains, and pipes that may

afford entry into the rental unit. Almost every rental property will have

the need for pest control at some point in time. An occasional cockroach

or ants in search of water or food are commonplace, and there are con-

sumer products available to handle these limited situations. However,

use professional exterminators to treat more significant problems and

talk to your exterminator about establishing a regular schedule for

follow-ups to be sure your rental unit is free of pests.

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Chapter 5: Get ting Your Rental Property Ready for Prospective Tenants

Painting

The next step in getting your vacant rental unit ready is painting. The keys to

success here are preparation and knowing what to paint when. Follow these

steps to turn your unit into a rental work of art:

1. Select and purchase the paint you want to use.

Remember, standardized colors are best, so you can easily and afford-

ably touch up your rental unit instead of having to completely repaint

it. One coat of a high-quality flat white latex paint is usually sufficient,

so use this standard to help determine the quantity you need to buy.

Note: You may require more gallons if you’re changing the paint color

to a much lighter shade than the current version. Try and use the same

brand paint because colors can vary by brand.

Plan to use a semi-gloss paint in kitchens and baths for easy cleanup and

resistance to moisture. Although this type of paint may cost more, you

save in the long run because purchasing higher-quality paint means you

don’t have to repaint the entire unit when it inevitably turns over.

2. Take everything off the surfaces you’re painting.

Remove all nails, screws, picture anchors, and other similar items.

Detach all door hardware and electrical coverplates, too.

3. Strip all dirt from the painting surfaces.

Make sure the walls in particular have been cleaned of any dirt. Treat

grease, crayons, water stains, and other blemishes with products

designed for that specific purpose.

4. Check that walls are properly patched.

You may also need to do some scraping and sanding to ensure your new

coat of paint adheres properly.

5. Start painting.

Paint the unit in its entirety (yes, I mean walls, doors, door and window

frames, baseboards, closets and closet dowels, and ceilings), unless

you’ve recently painted the whole unit and only need to touch up one or

two walls. Lucky you!

If you have acoustic ceilings, be aware that these present special prob-

lems, particularly if they contain asbestos. Always consult with a profes-

sional painter or licensed acoustic contactor before attempting to patch

or paint an acoustic ceiling and note that spraying paint is better than

using a roller.

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Don’t paint damaged surfaces and/or those surfaces showing signs of

moisture without determining the source of the problem and correcting

it. Wet or moisture-damaged drywall indicates either plumbing leaks or

water intrusion into the interior of the property. The sooner you identify

the culprit and make the necessary repairs, the better.

6. Replace everything you removed from your painting surfaces, after

the paint has dried.

Reinstall all the switch plates and outlet covers, replacing any that are

damaged or covered with paint.

7. Clean up any lingering mess.

Remove any paint that has strayed or splattered onto the floor, win-

dows, countertops, cabinets, appliances, and woodwork. Don’t allow

sinks or bathtubs to be used for paint cleanup.

Final cleaning

Cleanliness sells. And the only people you want as renters are the ones who

only accept dirt in their home as a temporary condition. For many rental

property owners, the thought of cleaning up after someone else is too much

to bear. Luckily, many local cleaning services do a great job for a very reason-

able price. Remember: You don’t have to do everything yourself.

However, if you decide to clean the unit yourself, keep the following pointers

in mind:

 Pay particular attention to the kitchens and baths. A dirty or grimy

kitchen or bathroom can be a real turnoff to potential tenants. Be sure

you clean and re-grout the tile, completely caulk around all countertops

and bathroom fixtures, and clean the single dirtiest spot in most rental

properties — the shower door track. For a final touch, install a new

toilet seat and place a paper sanitary ring around the toilet to indicate

it’s been professionally sanitized.

 Focus on smell. If a rental unit doesn’t smell clean, it won’t matter how

diligently you’ve cleaned it. Rental property owners often overlook the

importance of the sense of smell. Consequently, you can have a real

advantage over the competition for an amazingly small investment by

recognizing this underappreciated sense’s value. Here’re a few ideas:

• Use a pine oil or lemon disinfectant and cleanser to neutralize any

bad odors from prior tenants.

• Place baking soda in the refrigerator and drains, plus grind a lemon

in the garbage disposal, to suppress any bad odors.

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Chapter 5: Get ting Your Rental Property Ready for Prospective Tenants

• Put a cinnamon stick in a shallow pan of water, and place it in the

oven on low heat.

• Go to your favorite big box discount store to find many affordably

priced liquid potpourris available in a variety of scents.

• Avoid certain fragrances that may be offensive to your prospective

tenants.

In a short time, your rental unit will be filled with pleasant scents that

remind your prospective tenants of Mom and apple pie. Why? Because

this is a time when you want to go with something with a mass appeal

rather than your personal favorite scent — essence of yak.

Carpet or floor covering cleaning

Cleaning the carpet or floor covering is the last step in preparing your rental

unit for new tenants. Most floor coverings, such as linoleum or sheet vinyl,

can be cleaned during the final cleaning stage; however, carpet cleaning should

be handled only by outside contractors with professional truck-mounted steam

cleaning equipment. The cost of professional carpet cleaning is very competitive,

and you can’t achieve the same results with the non-truck-mounted equipment

that’s readily available for rent at your local grocery or hardware store.

Unless they’re obviously damaged, thoroughly clean your floor coverings before

deciding to make replacements. The best choice in floor covering material is

determined by your tenant profile, your prospective tenants’ expectations,

and your competition in the area. Linoleum or sheet vinyl is very competitively

priced, and the range of materials available is impressive. The most common

problem with sheet vinyl is that any damage requires complete replacement.

Some rental owners avoid sheet vinyl and prefer individual floor tiles that can be

replaced as needed; however, these tiles quickly trap dirt at the seams and can

look unsightly. Be sure to select neutral colors and basic patterns.

If the carpets are too dated, severely worn, or badly stained and damaged,

replace them. Carpeting is a decorator item, and care should be taken to

select colors and styles designed for use in rental property. I recommend

selecting a standard carpet style in a couple of basic colors for all your

rental properties. Although sculptured carpet works well for some units, a

nonsculptured carpet with short knap, or fibers, available in one or two neu-

tral colors has the broadest appeal. If you own a lot of rental units and have

proper storage space available, purchasing your standard carpet by the roll

can offer significant savings. The extra carpeting can be used to patch or

even replace a full room if needed; however, be aware that each roll of even

the same carpet style and color can be different, because the manufacturer’s

dye lot may vary slightly each time the carpet is produced.

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Many rental property owners make the mistake of purchasing a higher grade

of carpeting and trying to save money on the carpet pad. But the carpet pad

can make all the difference in the world. Consider using a higher grade of

rebond padding with a medium-grade carpet for competitively priced, yet

excellent, results.

Inspecting Safety Items

Although tenants need to take an active role in and have the ultimate respon-

sibility for their own safety, you need to check all safety items upon unit turn-

over. The most basic items found in virtually every rental unit include door

locks, window locks, and smoke detectors. Be sure these items are in place

and working before the new tenant takes occupancy. See Chapter 18 for tips

on how to ensure your tenants are protected.

Focus your safety inspections on the following items:

 A small fire extinguisher: Even if not required by code, I recommend

each rental unit should have one. Although there’s always the potential

liability that the tenant won’t use the fire extinguisher properly, most

lifesaving professionals advise it’s worth having because quickly using

a fire extinguisher can keep a fire from spreading. Of course, the tenant

should first ensure someone is immediately contacting 911 or the appro-

priate agency before attempting to put out the fire.

 Adequate locking mechanisms: Many local and state building codes

have specific requirements concerning the types and specifications of

door lock sets. Recent trends in legislation are requiring that all win-

dows that open and are accessible from the ground have proper window

locks. Window or insect screens should be in place and in good condi-

tion. The primary purpose of window screens is to keep the elements

and insects out; however, screens can also have some value as a crime

deterrent.

 Smoke detectors: They’re very inexpensive and extremely important to

your tenants’ safety. Check with your local fire department for its code

requirements, because some departments expect smoke detectors to

be electrically hard-wired, and others may still allow battery-operated

units. Contact your local fire safety or building officials for the latest info

on fire and safety codes. Many of the rules have changed in recent years,

particularly regarding the number and locations of required smoke

detectors. Consider complying with any recommendations, even if the

action isn’t required in existing rental units.

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Chapter 5: Get ting Your Rental Property Ready for Prospective Tenants

Make sure your records clearly indicate that you tested the smoke

detectors and found them to be operating properly before your new

tenant moved in. Afterward, the tenant must not disconnect or disable

them in any way. The tenant is also responsible for replacing the batter-

ies and regularly testing the smoke detector and alerting you in writing if

they don’t operate properly.

 Other important items: Your rental unit preparation work should also

include testing of the ground-fault circuit interrupters (GFCI or GFI) in

kitchens and baths, plus any other safety items, such as carbon monox-

ide detectors and radon detectors, if you have them.

At some rental properties, your tenants may be tempted to use portions of

the roof area for personal activities like sunbathing, hanging clothes, watch-

ing fireworks, or hosting parties (just to name a few). Allowing tenants’ roof

access is never a good idea, because roofs are only designed to shelter the

rental unit from natural elements, not to handle foot traffic. If you let tenants

up on your roof, you risk potential premature damage to it and exposure to

significant liability if someone gets injured.

Be sure the house number or address is clearly marked on the exterior of your

rental unit with at least 6" alphanumeric characters so it’s easy to locate the

property from the street. This simple measure can be a huge help to lifesaving

personnel in an emergency.

Using Outside Contractors

Determining how to handle the required turnover work in vacant rental

units is one of the toughest decisions rental property owners have to make.

Owners of large apartment buildings have maintenance personnel on staff

and many contractors ready to assist them as needed. They routinely handle

vacant units and just need to schedule the work. But owners of small rental

properties are typically on their own to either handle the work personally or

locate contractors to quickly prepare the vacant units.

Even if you’re inclined to do your own turnover preparation work, under-

stand that certain maintenance functions requiring specialized or licensed

training are best handled by outside contractors. For example, it would be

unwise for you to act as an exterminator or a contractor dealing with envi-

ronmental hazards, or to attempt to recharge the coolant in an air-condition-

ing unit. Specific regulations are in place, and unique knowledge is required

in these areas.

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Your skill level, time constraints, and opportunity cost may help determine

whether you do some chores yourself or hire a pro. For example, cleaning,

painting, and light maintenance may be items you feel qualified to handle,

can complete promptly, and believe won’t cause you to forgo significant

income in other areas. When in doubt, let others do what they do best while

you focus on what you do best: managing your rental property investment.

Every day your rental unit sits vacant costs you rental income you can never

recover. If you decide to paint your own rental unit, it may take you six days

working in the evenings and on weekends to completely paint a single-family

rental home. If the rental market is strong and the daily rental rate is $50 per

day, you’re actually losing money you could’ve had if you’d hired professional

painters for one day’s work at $300.

Regardless of how much work you choose to handle yourself, you need to

have a list of competent and competitively priced service companies and

suppliers on hand for those times when you need a quick response. Your

local affiliate of the National Apartment Association (NAA) or Institute of Real

Estate Management (IREM) can often provide names of service companies.

Carefully check references and the status of any bonds or licenses with the

appropriate governmental agency and ensure the company has the proper

insurance in place prior to commencing any work on your property. (Flip

to Chapter 16 for more on the ins and outs of working with contractors.) If

services exceed $600 in a calendar year and the vendor isn’t a corporation or

LLC, you need to file Form 1099 with the IRS.

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Chapter 6

Rent, Security Deposits, and

Rental Contracts: The Big Three of

Property Management

In This Chapter

 Determining the appropriate rent for your rental unit

 Setting and using security deposits wisely

 Choosing the type of rental contract you want to use

efore you can begin to advertise and show your rental unit, you need to

set your asking rent, determine the appropriate security deposit, and

have a rental contract ready to go. Not sure where to start? Don’t worry.

This chapter gives you some tips on figuring out what to ask for rent and

determining an appropriate security deposit. It also guides you through the

advantages and disadvantages of leases and month-to-month rental agree-

ments and gives you recommendations on how to get the benefits of each.

Setting the Rent

Setting the rent is an important decision because your net income from your

rental property is determined by the amount of rent you charge. Although

you may be tempted to pull numbers out of the air, resist that urge. If your

rent is too high, you’ll have difficulty renting your vacant unit. If it’s too low,

you’ll have plenty of prospective tenants, but not enough money to cover

your costs and generate a return on your investment. Finding the optimum

price takes time and effort, which is why it’s one of the most critical steps in

being a successful rental property owner.

You can use two common methods for determining how much rent to charge

for your rental property — return on investment and market analysis. This

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Par t II: Renting Your Proper ty

section takes a closer look at these two options and helps you figure out

which method is best for you.

Knowing how much money you need to break even is important for evaluating

the potential return on your real estate investment. But the reality is that the

amount you need or want to collect in rent is subject to market conditions, the

desirability of your rental property, and your abilities as a rental property owner.

If you currently own a rental property, you probably already know how much

rental income is necessary to cover your mortgage and other basic operating

expenses. If you’re looking to buy a rental property, determine your minimum

income needs before the deal is final. If you purchase a rental property that

already has tenants on a long-term lease, you don’t need to address the issue

of rent immediately because the tenants’ rent is set through the end of their

lease. If they’re not on a lease or have a lease that’s expired, then they’re

most likely on a month-to-month rental agreement — which only requires

you to give sufficient written notice of a rent increase. (For more information

on working with existing tenants, see Chapter 4).

Whichever category you’re in, you need to determine market rents so you

can calculate the appropriate rent when it comes time to renew a lease or

consider increasing rents to market level.

Examining the return on your investment

The first step in determining your rent based on the return on your invest-

ment is to calculate your costs of owning and operating the rental property.

Estimate costs for your mortgage, taxes, insurance, maintenance, leasing,

management, and profit on invested funds.

For example, if your annual expenses per rental unit are $12,000 for your mort-

gage and tax payments and $7,000 for other annual operating expenses, plus

you want a 10 percent ($5,000) annual return on your original cash investment

of $50,000, you need to generate a total rent of $24,000 per year, or $2,000

per month. (Of course, this simple calculation doesn’t account for increasing

equity or other tax advantages of real estate, but it’s a place to start.)

Although you may have calculated that you need $2,000 per month to achieve

your estimated break-even point (including your 10 percent profit), if the rental

market has determined that comparable units are readily available for $1,750,

you may not be able to fully achieve your financial goals at this time. With most

real estate investments, the initial returns may not match your original pro-

jections. Yet in the long run, rents often increase at a greater rate than your

expenses, thereby improving the return on your investment.

To avoid surprises, use a conservative budget that anticipates rental income

at $50 to $100 per month below the full market rent for a comparable rental

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Chapter 6: Rent, Security Deposits, and Rental Contracts

unit, plus provides for a vacancy allowance of one full month each year. In

my experience, some tenants don’t fulfill their lease obligations, leaving you

with a vacancy even if you had a 12-month lease, so be conservative in your

expectations.

For example, if you feel that the comparable monthly rent for your rental

property is $1,600, estimate your projected rental income based on a conser-

vative asking rent of $1,500 per month. Then anticipate receiving this amount

for 11 months rather than 12. After allowing for one month of vacancy, your

gross rental income projection falls from $18,000 annually to $16,500.

Many new rental property owners make a major mistake by overestimating

the potential income from their rental property. They develop unrealistic

operating budgets or projections by using above-market rents, not allowing

for rental discounts, and anticipating virtually no vacancy or bad debt. When

reality strikes, they’re faced with negative cash flow and the possibility of

losing their rental property. Avoid this situation by playing it safe and staying

conservative with your estimated income.

Setting the rent is particularly critical if you own single-family or condo rental

units and other small rental properties because the rent loss from an extended

vacancy or one bad tenant can seriously jeopardize your entire investment.

If you’re among this group of rental property owners, be conservative in set-

ting your rents, cautious in screening tenants, and aggressive in keeping your

rental properties in excellent condition to attract good, long-term tenants who

pay on time.

Conducting a market analysis

of rents in your area

You can determine the amount of rent to charge by calculating a desired return

on your investment and setting the rent accordingly (see the preceding section),

but typically the best way to set your rent is to conduct a market survey of

comparable rental properties in your area. Why? The answer’s simple: Most

rental markets have a finite limit to what prospective renters want to pay for

a comparable rental unit, and tenants don’t care how much you paid for the

unit or how much you continue to spend in operating costs.

Following are two schools of thought about performing a rent survey to deter-

mine the proper asking rent for your units:

 Pose as a prospective renter, and ask all the typical questions a pros-

pect may ask. The owner or manager will give you only the information

that a prospective tenant needs about the property.

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 Be honest and tell the owner you’re a rental property owner doing

market analysis. This is the method I recommend, particularly if you

have a small rental property. Most rental owners will cooperate and share

the information you need. They may even be willing to give you additional

important information you can’t get otherwise, such as the length of time

their rental units have been vacant, the number and types of phone calls

they’ve received to date, the actual occupancy rate for the properties, and

the feedback from their own research into rental rates and vacancies in

the local rental market. This behavior is especially true if they’ve recently

rented their properties and are no longer competing with you for prospec-

tive tenants.

Keep in mind that the owners of competing large apartment communities

probably won’t provide you with any information about their current occu-

pancy. This number is important, however, because it can provide a good

indication of overall demand for rental units in the market. Over the years,

I’ve discovered some creative ways to determine actual vacancy levels:

• Talk with the mail carrier who delivers to the complex because he

or she can tell you whether it’s completely full or relatively vacant.

• Ask a common vendor, such as a carpet-cleaning firm or extermina-

tor, that services your property and the large apartment complex

for the inside information you need.

• Drive through the property at night to see how many parking

spaces are being used.

In order to determine the market rents in your area, do your homework and

locate comparable rental properties. Comparable properties are those proper-

ties that your tenants are most likely to have also considered when looking

for a rental unit. They may be located right in the neighborhood or all the way

across town. For example, many of your rental prospects may work at the

hospital located six blocks west of your property. But your rental prospects

are just as likely to choose a rental within six blocks of the hospital in another

direction. So your comparable properties can be 12 blocks away. Don’t

assume your comparable properties are solely in your own neighborhood.

When you’ve determined which rental units are comparable, finding out the cur-

rent market rent is easy. Begin by checking the For Rent signs in your area and

calling for the asking rent and other details. The local or regional newspaper

usually has ads listing the units for rent in the area along with some details and a

phone number to call for more information. Although calling about ads gives you

some good general information, you need to see the rental properties in person

to truly determine whether they’re comparable to yours.

Be careful to distinguish between the asking rents quoted on signs or by

phone. Many landlords (especially those with single-family homes or con-

dominium rental units) can be negotiated down from the asking rent pretty

easily. Most owners of individual rental units can’t afford vacancies for more

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Chapter 6: Rent, Security Deposits, and Rental Contracts

than a couple of weeks and quickly lower the rent if qualified prospects show

interest in their rental properties, so you need to base your decisions on

signed leases, not asking prices.

Remember, rental rates can vary greatly from neighborhood to neighborhood

and even from street to street, because many factors affect rents, including

the following:

 Landscaping

 Property features, such as location, age, and size

 Reputation of the neighborhood or rental property

 Traffic noise

 Views

As a result, determining the proper asking rent isn’t scientific. Setting your

rent a little too high at first is better than setting it too low, because you can

always reduce your asking rent slightly if you encounter too much resistance.

Of course, be honest and make downward adjustments for aspects of your

rental property that aren’t as competitive or desirable as those of the compa-

rable properties in your area.

When estimating the proper market rent for your unit, be careful not to

make adjustments based strictly on your own personal preferences. The

rental value of a particular property is subjective and can vary dramatically

from one person to another. For example, you may prefer upstairs units and

believe they should be priced higher than comparable downstairs units.

Although many prospective renters may agree with you, just as many pros-

pects may similarly value a downstairs unit because they may not want to

climb stairs.

The accompanying CD has a Market Survey form you can use to compare and

contrast your rental property with other comparable properties and assist

you in determining the appropriate rental rate.

The following sections break down some additional items to think about

when conducting your market analysis.

Considering rental concessions in determining your rent

When you contact other rental property owners or managers to determine an

effective rent, the actual net rent after all concessions and discounts, for your

property, be prepared to receive a rent quote but don’t expect to hear about

rental concessions. A Rental concession is basically a discount given to entice

a prospective tenant to sign a rental contract. Landlords tend to give conces-

sions in softer real estate markets where the demand for apart ments has

slowed, so identifying potential concessions is important in your comparison

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Par t II: Renting Your Proper ty

because you need to know what the net or actual collected rent is. If you don’t,

you may overprice your rental units.

To find out the actual effective rents, with concessions included, I recommend

you contact rental property owners or managers after they’ve rented their

units and concluded marketing efforts. Now that their properties are occu-

pied, they’re more likely to cooperate and give you accurate, complete infor-

mation regarding their agreed-upon terms.

Calculate the effective rental rate by dividing the total rent by the length

of the rental period. Note: The total rent may be affected by various rental

concessions. For example, say a competitive property in your area recently

rented at $1,200 per month on a one-year lease, but the first month’s rent was

waived. Then the effective rent is $1,100 per month. Divide the total rent of

$13,200 by the 12 months of the lease. The effective rental rate is thus $1,100

per month.

Without knowing about the rental concession, you may mistakenly think the

comparable unit rented at $1,200 per month. As a result, you may set your

asking rent too high or be hesitant to offer your own rental concessions to

stay competitive with what you think is a higher price. Just remember that

every day your rental unit sits vacant because your rental rate is higher than

the competition’s is money lost.

Deciding whether to market your rental property

using gross rents or net rents

After completing your analysis of your local rental market and taking into

consideration any concessions, you need to set your final asking price. You

can do so by formulating a marketing strategy to ensure you get the best

price for your rental property.

Here are your options:

 Quote a higher gross asking rent, which is similar to the “suggested

retail price” that stores use, and then offer rental concessions to attract

the attention of your prospective target market.

 Go with a lower effective asking rent that is the net of the rental conces-

sions prevalent in the market.

If you like to negotiate and can sell the special offer, the gross rent method is

for you. Inevitably, some prospective tenants are attracted to rental properties

offering specials; at least that’s the impression I get when some prospects call

about a rental property and the first words out of their mouths are, “What’s

your special?” Be sure to watch out for tenants who are just looking for the

special discount off the rent up front, because they likely aren’t the long-term

quality tenants you want (and need) to be a successful rental property owner.

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Chapter 6: Rent, Security Deposits, and Rental Contracts

Have you ever heard about the great bargains available on cruise vacations

booked at the last minute? Well, the concepts of inventory management and

lost revenue also apply to the rental housing industry. Units that sit vacant

for too long are usually overpriced, and each day that passes with your rental

property vacant is more lost rent you can never collect. Either re-evaluate

your asking rent or concessions or see what you can do to make your rental

unit superior to the competition to secure those long-term tenants.

Not into wheeling and dealing? Perhaps you prefer telling your prospec-

tive renters that unlike all the other landlords offering gimmicks and spe-

cial deals, you’re all about cutting the hype and offering them the best net

monthly rental rate. In my experience, many tenants find a lower, straightfor-

ward rental rate quote more attractive, especially if they plan on staying for a

long time.

Regardless of which marketing strategy you take, avoid the temptation to set

your rent based on the number of occupants your rental unit can hold. Some

landlords have a policy that the base rental rate is for a certain number of ten-

ants; they then charge more for each additional tenant in the unit. This prac-

tice is sometimes called per head rent. However, the Department of Housing

and Urban Development considers such policies violations of the Fair Housing

Act. The only exception is if you can show a legitimate business necessity, or

verifiable increased cost to maintain your rental property, such as higher

water or sewage bills. If you think you can prove a business necessity, check

with your landlord-tenant legal expert before setting rents. Otherwise, take my

advice and avoid these turbulent waters.

Ultimately, your marketing strategy is often influenced by what’s most com-

monly done in your local rental market, but don’t be afraid to incorporate

your personal style.

Dealing with potential rent control issues

Most areas of the country don’t impose limits

on the rental rate you set for your property. Rent

control is currently only found in Washington,

D.C. and a handful of states: California,

Maryland, New Jersey, and New York. If you

own a rent controlled property, you need to

obtain a current copy of the ordinance and fully

understand the implications of local rent control

when setting your asking rent. You also need

to know how you can implement future rent

increases because rent control limitations may

influence your initial asking rents.

If you’re limited to only nominal future rent

increases, be very patient to make sure you get

the maximum rent possible for a new incoming

tenant, because this base rent will be a factor in

your rental income for the entire duration of the

tenancy. In other words, if you lower your rent

by $100 to quickly rent your property, you may

be negatively affecting your income stream for

many years.

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Coming Up with a Fair Security Deposit

As an owner of rental property, you need to make sure the security deposit

you collect adequately protects you from tenant damage or default. The secu-

rity deposit serves as the protection you need before turning your real estate

asset (the rental unit) over to a tenant. It needs to be large enough to moti-

vate the tenant to return the rental property in good condition, plus serve

as an accessible resource to cover the tenant’s unpaid rent or reimburse

the costs to repair any damage. If your security deposit’s set too high, many

qualified tenants may not be able to afford the move-in costs for your rental

property, resulting in fewer applicants.

State laws typically limit the amount of the security deposit you can collect

and regulate its return, along with any lawful deductions. If you collect the first

month’s rent upon move-in, this money is not considered part of the security

deposit. Some states specifically allow certain small rental owners to be exempt

from these rules. See the CD for more information on state laws about security

deposits.

The next several sections help you determine the right amount for your

security deposit.

Figuring what you can legally charge

Many states limit the amount you can collect as a deposit to the equivalent of

one or two months’ rent. The limit varies in each state depending on certain

factors, such as whether the rental is furnished, whether the tenant is on a

lease or a month-to-month rental agreement, whether the tenant has pets or

waterbeds, or whether the tenant is a senior citizen.

In most rental markets, the security deposits are well below the maximum

allowed by law. While staying within the legal limits, I recommend you collect

as large of a security deposit as the market can bear.

Security deposits are more than just money you hold for protection against

unpaid rent or damage caused by your tenant. Although the actual cash

amount may be relatively small compared to the overall value of your rental

property, the security deposit is a psychological tool that’s often your best

insurance policy for getting your rental unit back in decent condition.

When trying to determine how much to charge for your security deposit, make

sure you avoid the following potential costly mistakes:

 Don’t lower the security deposit or waive a security deposit payment.

If the funds required to move in are too high, collect a reasonable

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Chapter 6: Rent, Security Deposits, and Rental Contracts

portion of the deposit prior to move-in and allow the tenant, in writing,

to pay the balance of the security deposit in installments. This type of

written agreement usually indicates that any funds paid by the tenant are

first applied to the security deposit and then applied to the rent. Don’t

allow the tenant to miss or delay payment of any subsequent security

deposit installments. Take legal action immediately if the tenant misses

making any security deposit payments or fails to pay the rent in full.

For single-family homes, I strongly advise getting as large of a security

deposit as possible. Aside from the inherent increased value of the

rental home itself, you likely have tremendous value in the grounds,

landscaping, and pool or spa (if applicable) — meaning much more of

your valued property can be damaged by tenants. Rental homeowners

also tend to inspect or visit their property less frequently, and it takes

only a few weeks of inadequate watering or shoddy landscaping main-

tenance to find you’ve suffered significant damage. See Chapter 17 for

advice on ways to convince tenants that landscaping or pool/spa main-

tenance are best left to professional contractors.

 Don’t completely eliminate security deposits. Property owners in

soft or low-demand rental markets often offer free rent or “no security

deposit” move-in specials. Prospective renters attracted by such offers

typically aren’t the types to become long-term stable tenants who treat

your property with respect and care about peaceful, harmonious living

with their neighbors.

Although staying competitive is important, I recommend avoiding free

rent or “no deposit” specials whenever possible. Offer to pay the pro-

spective tenant’s security deposit instead. You still receive the first

month’s rent when your tenant moves in, and he can potentially receive

a security deposit refund if the property is in good condition at move-

out. Essentially a form of free rent (because you’re crediting the tenant,

not receiving money), this move reduces the total funds your incoming

tenant must pay. Unlike a risky move-in special, you’re offering the con-

cession at the end of the lease, not the beginning. As a result, you’re less

likely to attract tenants who move from landlord to landlord in search

of up-front freebies. You also have a better shot at creating a strong psy-

chological and practical motivation for the tenant to fulfill the terms of

his lease. Why? Because that security deposit cash comes in handy for

covering the costs of moving to a new residence . . . after several good

years at your property, of course.

Keeping security deposits separate

from your other funds

Security deposits are liabilities from an accounting point of view because

these funds legally belong to the tenant. You hold them in trust as protection

in case the tenant damages the property or defaults in paying rent.

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Because the funds don’t belong to you, several states require security depos-

its to be held in a separate bank trust account instead of being mixed in with

other funds from your rental properties or personal resources. Some states

even insist you provide your tenant with a written notice indicating the loca-

tion of this bank trust account at the beginning of the tenancy.

Keeping the security deposits separate from the rest of your funds means

they’re readily available whenever a tenant moves out and is potentially enti-

tled to the return of some or all of her money. Doing so, even if not required in

your area, can be a great way to avoid cash flow problems. Say a tenant fulfills

all contractual obligations before move-out and deserves a security deposit

refund. If you commingled her deposit with your personal funds, you may

find your current cash availability can’t cover a large security deposit refund

within the short time frame required by law in most areas. This situation can

lead to legal action by the tenant and additional penalties and interest. The

lesson? Always make sure you have available funds to cover the potential

refund of security deposits.

Avoiding nonrefundable deposits

A nonrefundable security deposit, which is allowed in some states, is a portion

of the deposit that you, the property owner, retain no matter what’s allowed

by state law. A nonrefundable security deposit may sound like a good idea,

but it may also send a message to the tenant that he has to pay for the costs

of preparing the rental property for the next tenant. My 30 years of experience

with tenants leads me to question the benefits of nonrefundable security

deposits in most instances because the incentive is gone for tenants to keep

and maintain the property in the best condition.

In fact, I recommend avoiding nonrefundable fees in general in favor of seek-

ing a higher, fully refundable security deposit so you have funds to cover

damage repairs and cleaning, if necessary. It’s a good day as a rental owner

or property manager if your tenant vacates and leaves the rental property in

good condition, so I prefer to have the entire security deposit be refundable.

Approximately a dozen states have specific laws permitting rental property

owners to have nonrefundable security deposits or fees. These fees cover the

costs of services such as cleaning, repainting, or redecorating. Some states

have very specific limitations on these nonrefundable deposits or fees and

don’t allow charging for any excessive costs incurred. On the other hand,

several states don’t have laws specifically prohibiting nonrefundable depos-

its and leave such decisions to the mutual agreement of the property owner

and the tenant.

Regardless of where you live, not using nonrefundable deposits allows you to

avoid potentially time-consuming disputes with your tenants, such as what

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Chapter 6: Rent, Security Deposits, and Rental Contracts

happens if the $150 nonrefundable cleaning deposit is insufficient to cover

the $250 costs for cleaning a filthy rental property.

Paying interest on security deposits

Several states have laws requiring rental property owners to pay interest

on a tenant’s security deposit. You can find some basic information about

security deposit interest on the CD, but check with your local affiliate of

the National Apartment Association for the exact requirements in your area

because the laws differ dramatically from state to state.

The method of calculating interest varies greatly, with some states providing

a formula tied to the Federal Reserve Board rates or flat percentage amounts.

Most states require interest payments to be made annually and at termination

of the tenancy.

No laws prevent you from voluntarily paying interest on deposits, and some

owners offer to pay interest as a competitive advantage or an inducement to

collect a larger security deposit. If you’re able to get a much larger deposit, I

recommend paying interest on it. The additional peace of mind is worth the

relatively small amount you’ll pay in interest.

Last month’s rent

Until recently, many rental property owners col-

lected the first month’s rent, the last month’s

rent, and a security deposit from new tenants, a

method that has some disadvantages. I strongly

recommend you collect the first month’s rent, plus

a security deposit equal to or greater than one

month’s rent, because collecting the “last month’s

rent” can create unnecessary problems.

If the rental rate increases during the tenancy

and you’ve already collected a lesser amount

as the “last month’s rent,” upon move-out, the

tenant (and often the court) will likely take the

position that the “last month’s rent” has already

been paid in full, even though the rental rate has

increased. When giving rent increases, many

owners fail to also require the tenant to increase

the amount held as the “last month’s rent.” Plus,

in some states, the designation of “last month’s

rent” limits your use of these funds to only that

specific use. Thus, even if the rental unit is

extensively damaged and the security deposit

is fully exhausted, the “last month’s rent” can’t

be used to cover those damages.

Set your security deposit to an amount that’s dif-

ferent than the monthly rental rate to minimize

your tenant’s chance to claim he thought the

security deposit would cover his last month’s

rent. Ideally, you can collect a security deposit

that’s higher than the monthly rental rate. But

even if you collect a deposit that is $25 to $50

less than the monthly rent, you effectively elim-

inate any tenant attempt to claim the deposit

was for the last month’s rent.

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Increasing deposits

If you have a long-term tenant and your rents have increased significantly

over time, you may want to consider increasing your security deposit

amount. This move is legal as long as you comply with the normal require-

ments for any change in the terms of the rental agreement.

For example, if you have a fixed-term lease in effect, you must wait until the

lease expires or rolls over to a month-to-month rental agreement before

requiring an increase in the security deposit. If you have a month-to-month

rental agreement, then you can increase the security deposit the same way

you raise the rent, typically by giving the tenant a written notice 30 days in

advance. Either way, remember that you’re subject to the maximum security

deposit amounts as set by state law, if any.

The accompanying CD has information on some of the basic state require-

ments for security deposits such as interest, if any; the maximum amounts

you can request; and the time limits to return deposits, plus links to all state

landlord-tenant laws for other legal issues.

Choosing the Type of Rental

Contract You Want

Another important decision you need to make before you begin advertising

and showing your rental is whether you want to use a lease or a month-to-

month rental agreement. The rental contract, whether a lease or a month-to-

month rental agreement, is the primary document that specifies the terms

and conditions of the agreement binding the property owner and the tenant.

It’s a contract between the owner of the rental property and the tenant for the

possession and use of the rental property in exchange for the payment of rent.

The following sections give you the lowdown on the two types of agreements.

Contemplating a lease

A lease is a fixed-term contract that obligates you and the tenant for a set

period of time, and some owners like the commitment required from the

tenant. The most common lease terms are for 6 months, 9 months, or 12

months, and the majority of leases are written to automatically convert to

a month-to-month rental agreement after the expiration of the initial term.

However, some leases are for fixed terms, and the owner and tenant must

agree to sign a new lease for the tenant to stay.

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Chapter 6: Rent, Security Deposits, and Rental Contracts

A lease is advantageous for tenants because it locks the rent in place for the

term of the lease, and it’s potentially advantageous for you because you can

theoretically count on having a tenant for a set period of time.

Rental property owners generally charge a lower rental rate for leases than

for month-to-month rental agreements, because tenants on a lease aren’t

associated with as high a risk of turnover as individuals on short-term agree-

ments. Yet in 15 years of writing a nationally syndicated landlord-tenant Q &

A column, I’ve received hundreds of inquiries from tenants seeking sugges-

tions for a compelling story or legal argument to break their long-term leases.

Whether they just wanted the lower up-front cost offered by a lease or their

personal needs changed, all of them wanted out of their long-term commit-

ments. So be cautious and don’t offer more than a $10 per month discount for

long-term leases, unless your local market conditions warrant a higher amount.

With a lease, you can’t increase the rent or change other terms of the tenancy

until the lease expires. Also, you can’t terminate or end the tenancy before the

lease expires, unless the tenant doesn’t pay his rent or violates another term

of the lease. Should you wind up in court, you’ll have the burden of proof,

meaning you’re the one who has to prove the tenant didn’t live up to his part

of the contract.

Although the lease legally binds both you and your tenant, the current land-

lord-tenant laws in virtually every state favor tenants. A tenant can walk away

from a lease without difficulty, and in most states, the owner has the duty

of mitigating or minimizing the potential damages. This legal mumbo jumbo

means you must make a reasonable effort to re-rent the premises and can

only charge for the rent incurred until the new tenant begins paying rent.

Eyeing a periodic rental agreement

Some owners prefer the flexibility offered by a month-to-month rental agree-

ment over the rigidity of a lease. A month-to-month rental agreement is com-

monly used by rental property owners. It’s essentially a 30-day lease that

automatically renews each month, unless the owner or tenant gives the other

proper written notice (usually 30 days) to terminate the tenancy. Month-to-

month rental agreements give you much more freedom than leases, because

you can increase the rent or change other terms of the tenancy on 30 days’

notice. They can also be easily modified for short-term rentals by converting

the rent payment period from monthly to weekly or biweekly.

Of course, month-to-month rental agreements have their downsides:

 Your tenants may be concerned about the possibility of changing rental

rates or policies.

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 Your tenants may worry about having to relocate on short notice, leaving

you to wonder whether you’re likely to have a tenant locked in for a certain

lease term.

 Your tenants may not like moving and want to stay somewhere long-term.

Although the month-to-month rental agreement does allow your tenants the

right to move at any time merely by giving a 30-day written notice, the reality

is that most tenants don’t like to move and will often stay long-term. The

majority of tenants only move because of a job transfer or another significant

reason, or because the rental owner doesn’t properly maintain the property.

The wide variations in laws regarding notice requirements for changing or ter-

minating month-to-month rental agreements clearly illustrate the importance

of knowing your state and local landlord-tenant laws. Some states don’t have

any statutory requirements for giving notice; others mandate a time frame such

as 10 or 15 days. The majority of states require 30 days’ notice, but four states

(California, Delaware, Georgia, and Hawaii) currently require property owners

or managers to give more than a 30-day written notice when changing agree-

ment terms or terminating a month-to-month tenancy. For example, in California,

property owners with tenancies greater than one year must provide a 60-day

termination notice, whereas the tenant only needs to provide 30 days’ notice.

Rent increases in California can also be subject to either 30 or 60 days’ notice,

depending on the amount and timing of the increase in conjunction with previ-

ous increases. Check out the accompanying CD for more information on state

landlord-tenant laws and acquaint yourself with the laws in your particular area.

Get familiar with and respect the types of agreements typically offered in

your local rental market. If competing properties are all offered on month-to-

month rental agreements, you may find it difficult to attract plenty of well-

qualified rental applicants if you’re insisting on a 12-month lease.

Getting your contract in writing

No matter which method you use, never allow a tenant to take possession

of your rental property without fully executing your written rental contract.

Some tenants refuse to sign documents so they can claim they had a verbal

agreement that’s much different than the one you had in mind.

The CD contains both a standard Lease Agreement and a Month-to-Month

Rental Agreement. Be sure to have an attorney specializing in landlord-

tenant law review these documents and all other forms in this book or on

the CD before using them in your area. In some states, special language must

be included in the leases and rental agreements. For example, Florida has

required language about radon, and many states have required information

that must be given to tenants concerning access to a sexual offender or child

molester database.

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Chapter 6: Rent, Security Deposits, and Rental Contracts

Standard lease forms are great, but they don’t allow you to add your own

clauses. However, you can modify the terms of your rental agreement fairly

easily with the Addendum to Lease or Rental Agreement shown in Figure 6-1

and included on the CD. Perhaps you want to add the requirement that the

tenant acknowledges receipt of the rules and regulations of the community

or homeowners’ association and is responsible for any fines or assessments

resulting from his or her breach of the rules. This condition can be easily

incorporated into the lease by using the Addendum. Remember: Be careful

about adding additional clauses or language to your lease or rental agreement

without seeking the advice of an attorney.

Although oral rental agreements of up to one year are binding, make sure all

your leases or rental agreements are in writing, because so many issues sur-

rounding those agreements involve monetary considerations. Memories fade

and disputes can arise that are usually resolved in the tenant’s favor should

legal action be required and proof to the contrary can’t be found in writing.

Courts expect the property owner or manager to operate his or her rental

housing business in a professional manner and to have clear documentation

at all times.

Figure 6-1:

Addendum

to Lease

or Rental

Agreement.

Addendum to Lease or Rental Agreement

This Addendum to the lease or rental agreement entered into this _______ day of ________________, 20 ___

between ________________________________ (Tenant) and _____________________________ (Owner) for

the premises located at: _________________________________________________________ (Rental unit).

This Addendum shall be and is incorporated into the Lease or Rental Agreement dated the ____ day of

_______________, 20 ___ between Tenant and Owner.

Tenant and Owner agree to the following changes and/or additions to the Lease or Rental Agreement:

__________________________________________________________________________________

This Addendum to be effective as of __________________________________, 20 ___.

Dated: ______________________________ Dated: ______________________________

OWNER: TENANT(S):

Property Name:_______________________

By__________________________________ ____________________________________

Owner or Agent for Owner

____________________________________

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Oral agreements create the potential for charges of discriminatory treatment.

Always put all terms and conditions in writing, even if you intend to have only

a short-term agreement, or you know the tenant personally. Oral agreements

often can’t be substantiated and aren’t always enforceable.

Seeking the best of a lease and a rental agreement

In my experience, the number one reason ten-

ants insist on a lease is that the rent’s locked

in for a minimum period of time. But in most

instances, especially in rental markets where

rent increases aren’t likely, owners want the

flexibility and latitude afforded by the month-to-

month rental agreement. If the tenant doesn’t

abide by the terms of the lease, she can simply

terminate the rental agreement without having

to prove the breach in a court of law.

Despite this discrepancy in desires, it’s pos-

sible to achieve both goals. I strongly recom-

mend using a month-to-month rental agreement

in conjunction with a Rental Rate Guarantee

Certificate (found on the accompanying CD).

This method affords your tenant the benefits of

a stable rental rate for a minimum period of time

without restricting your ability to change other

rules or even ask the tenant to leave in 30 days

if problems arise.

If your local market conditions dictate a longer

fixed rent term than what’s indicated on this

certificate, you can make an even more signifi-

cant impression on a great prospective tenant

by using a black marker or felt pen to clearly

cross out “six months” and fill in a longer term.

Be sure to print this certificate onto specialty

paper to give it a valuable look.

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Chapter 7

FOR RENT: Generating Interest

in Your Rental

In This Chapter

 Planning your marketing strategy

 Figuring out the role advertising plays

 Making sure you don’t violate any Fair Housing laws in your marketing efforts

 Finding the advertising tactics that best meet your needs

ore than almost any other single item, locating and renting to good-

quality tenants makes your experience as a property manager enjoy-

able and profitable. But finding a good tenant can be a long process if you

don’t know how to do it. So in this chapter, I take you through the process

from beginning to end — from creating a marketing plan (which helps you

narrow your focus and set goals) to writing solid print ads to using the

incredible resources of the Web to broaden your reach for prospective ten-

ants. Start here if you just found out one of your units will be vacant in a

month or if you’ve already had a vacancy for twice that long. It’s never too

late to start advertising effectively, and in this chapter, I give you all the tools

you need to do exactly that.

Developing a Marketing Plan

A marketing plan can be anything from a formal written outline of your mar-

keting strategies to some general marketing ideas you keep in mind as you

try to find renters for your property. If you own only one or two properties,

or if you own 20 or 30 rental units in multiple locations, you may not think

you need a marketing plan. Developing one may seem like an unnecessary

use of your time and energy. But the basic concepts of a marketing plan are

important for all rental property owners, regardless of the number of rental

units you own.

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The key to success in owning and managing rental properties is to keep your

rental units full with long-term paying tenants who treat your rental property

and their neighbors respectfully. But first you need to determine the best

way to attract and retain these highly desirable tenants. The following sec-

tions help you develop a marketing plan to do just that.

A good marketing plan consists of strategies for attracting prospective tenants

and retaining your current tenants. Keeping your current tenants is so vital to

your long-term success as a rental property owner that I devote Chapter 13 to

figuring out how to make it happen.

Determining your target market

One of the first steps in developing a basic marketing plan is to determine the

target market for your rental property. The target market consists of rental

prospects who are most likely to decide that your rental unit meets their

needs. Your target market can be relatively broad or fairly narrow, depending

on the location, size, and features of your rental property. If you have mul-

tiple rental properties, you may find that each property has a different target

market or that the target markets overlap.

The likelihood of finding responsible renters is often a numbers game. The more

prospective renters you’re able to attract, the greater your opportunity to care-

fully evaluate their qualifications and select the most qualified applicant.

In order to identify your target market, make sure you carefully evaluate your

rental unit by looking at the following features that make it unique:

 Location: What are some of the benefits of your property’s location? Is it

located near employment, medical services, shopping, schools, or other

important neighborhood or regional facilities? Paying attention to your

property’s location may provide you with a target market that includes

employees of certain companies or people who need to live near certain

local facilities.

 Size: Larger units tend to be more attractive to families or roommates,

whereas studio units are more suitable to single renters or couples.

 Amenities: A property that allows pets and has a large yard typically

appeals to pet owners and/or renters with children. If your rental prop-

erty has storage space or a garage, some hobbyists may be particularly

interested in what you have to offer.

When you compare the attributes of your rental property to the needs of

all prospective renters in your rental market, you’ll probably discover that

certain renters may find your rental unit meets their needs more than others.

You can use this knowledge to target specific audiences, but your rental

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Chapter 7: FOR RENT: Generating Interest in Your Rental

efforts must never discourage, limit, or exclude any prospective renter from

having an equal opportunity to qualify and rent from you.

If you don’t attract and retain tenants, you can rest assured your competition

will. You’re competing with other owners and property managers for the best

tenants, even if you only have a few rental units. In most rental markets, prospec-

tive tenants have many options, and the most responsible tenants are very selec-

tive, because the rental unit they choose will be their home sweet home.

Thinking about what your renters

stand to gain from your property

After you’ve established who your most likely rental prospects are, you need

to shift your focus to incorporating and implementing the concept of a target

market into your rental marketing plans. This time is when I usually think

of the WIFM concept. WIFM stands for what’s in it for me, and this theory

represents the thought processes of virtually all consumers (including your

potential tenants) when evaluating a purchase decision. (I discovered this

important idea at the national faculty training sessions of the Institute of Real

Estate Management.) The WIFM concept reminds you that, in general, people

are most interested in the benefits they personally receive in any given rela-

tionship or business transaction.

When it comes to marketing and advertising your rental property, the impor-

tant concept of WIFM can help you see the rental decision process through

the eyes of your prospective tenants, making your goal of finding long-term,

stable tenants more attainable. Unfortunately, rental property owners and

managers are human, and they often fail to critically evaluate the advantages

and disadvantages of the product they’re selling — their rental housing unit.

As a rental property owner or manager, you have a competitive advantage

if you understand the opportunities and challenges presented by your par-

ticular rental property and the specific rental unit that’s available. You can

also beat out the competition if you find ways to improve your property’s

weaknesses or narrow your marketing focus to those specific types of tenants

who’ll be attracted to your rental property.

Understanding the Importance

of Good Advertising

Tenants rarely come looking for you. Your local newspaper may have a

column for “Housing Wanted” (if so, lucky you!), or one of your current ten-

ants may contact you inquiring on behalf of a friend who’s looking for a rental

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unit. These scenarios are the exception, not the rule. The majority of your

tenants come from the efforts you make to locate qualified rental prospects.

Advertising is how you let people know you have a vacant rental property

available. If people don’t know you have vacant units, then they can’t rent

them. When advertising is done well, the money you spend on it is extremely

worthwhile. But when it’s done poorly, advertising can be another black hole

for your precious resources. Advertising is more of an art than a science at

times, because what works for one particular rental property may not work for

another. The next few sections give you the lowdown on the role of advertising

in renting your property and what you can do to get your property rented.

Review the information from your marketing plan about the most marketable

features and attributes of your rental property and present it to rental

prospects in your advertising.

Eyeing the different approaches

Advertising for rental properties is no different than advertising for large

superstar corporations with market research firms. The key to success in any

type of advertising is determining how you can reach your target audience.

In the case of rental property advertising, you want to reach that very small,

select group of qualified renters who’ll be interested in your rental property

when it’s available to rent.

Although you can creatively and effectively advertise your rental property in

many different ways, two of the fundamental differences between the adver-

tising methods at your disposal are the precision with which you reach your

target audience and the ultimate cost involved.

Consider these two different approaches:

 Rifle approach: This type of advertising is very specific and targets a

narrow group of prospective renters. The best rifle approaches to adver-

tising are word-of-mouth referrals and “For Rent” property signage. But

if you rely solely on these approaches to find tenants, you may end up

with vacant properties much longer than you want.

 Shotgun approach: This type of advertising blankets the market with

information to renters and nonrenters, qualified and unqualified alike.

Although their circulation numbers have been declining, many of the

major daily newspapers in most metropolitan markets can still deliver

impressive readership numbers — especially on weekends. However, they

can’t tell you how many of those readers are actually reading the rental

property ads or looking for an apartment on the specific day your ad runs.

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Chapter 7: FOR RENT: Generating Interest in Your Rental

Many methods of advertising your rental property fall into the shotgun

category; very few methods fall into the rifle category. Regardless of which

method you choose, remember that advertising is, for the most part, a num-

bers game. Reach enough readers and you’re bound to find a few who’re

looking for a rental property like yours on a given day. In an ideal world, you

pay only for the ability to reach that limited number of qualified renters in

your area who’re looking for a rental property just like yours and who want it

the day it’s ready to rent. Of course, this ideal isn’t reality, but it gives you a

goal to strive for when you evaluate the different ways you can advertise.

Knowing which approach gives you

the most bang for your buck

Creating interest in your rental property used to be as simple as putting up

a sign or placing an ad in the local newspaper. Although the methods of

Looking at your property through your

prospective tenants’ eyes

I once had a rental property located near a major

university. The property had several vacancies

in the 2-bedroom/1-bath units. Because I was

wary of renting to large numbers of undergradu-

ate students interested in only short-term leases

for the school year, my marketing plan was to

attract university faculty or graduate students

whom I thought would have a roommate and

be perfect for the 2-bedroom units on a year-

round basis. Although many prospective tenants

looked at the units, my actual rentals were very

slow and the 2-bedroom vacancies remained

unacceptable. Clearly, I was trying to define and

force the rental market and prospective renters

to adapt to my perception of their needs.

When it became obvious that my rental efforts

weren’t having much success, I began carefully

reviewing the comments of prospective ten-

ants. I found that my target faculty and graduate

students preferred to live alone on a long-term

lease so they could have a quiet place to work

or study without roommates. With this new view

of my prospective tenants’ needs, I quickly real-

ized I could market my 2-bedroom/1-bath units

to my target market with a new approach.

Armed with this knowledge, I revised my mar-

keting efforts by changing my advertising in the

college newspaper to read, “1 bedroom plus

den.” This move led to an increased interest

in the property as well as a greater occupancy

percentage and more long-term leases. Just by

changing the way the units were advertised, I

found that I was able to reach my original target

market of faculty and graduate students who

wanted to live off campus.

Remember: While observing all Fair Housing

laws, look at your rental property from the

perspective of the most likely tenants. Then

promote and accentuate the features of your

rental property that are of greatest interest to

that market. But always be careful not to dis-

courage prospective tenants from renting your

property.

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informing potential renters in your area about your rental property may

still include these tried-and-true techniques, the success and broad reach of

the Internet means you have many other excellent options to consider. The

target market for your rental property has a lot to do with which method of

advertising works best for your particular rental unit.

One of the best ways to determine your rental property’s most desirable fea-

tures for your target market is to use the what’s in it for me (WIFM) concept

and ask your current renters what they like about where they live. You may

also figure out from talking with the qualified rental traffic (all the people who

look at your property, not just those who agree to rent) what they find of

interest in your rental property. The key is remembering your rental property

has different features that appeal to different prospective renters. Over a

period of time, you can determine certain common factors that most prospec-

tive tenants desire. Incorporate these selling points into your marketing and

advertising efforts.

One size rarely fits all. When it comes to advertising a rental property, you

need to employ a combination of both the shotgun and the rifle approach

(described in the preceding section) to be successful. Clearly, both methods

have advantages. Referrals and property signs often give you good exposure to

renters in your local area, whereas newspaper and Internet ads have the ability

to let people relocating to your area know about your rental property as well.

Check out Table 7-1 for the pros and cons of various advertising tactics.

Table 7-1 Pros and Cons of Different Advertising Tactics

Approach Pros Cons

Community bulletin boards Inexpensive Narrow market

Direct mailings Inexpensive Low response rate

Flyers Allow more details Limited distribution

Internet Ease of use;

decreasing cost

Uncertain effectiveness for

smaller properties

Local employers Qualified prospects Narrow market

Newspaper Broad reach Potentially expensive

Property signs Very effective;

inexpensive

Narrow market

Rental publications Widely used by

prospects

Expensive for small proper-

ties

Word-of-mouth High credibility;

inexpensive

Narrow market

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Chapter 7: FOR RENT: Generating Interest in Your Rental

Getting your property to rent itself

Before you spend money on advertising, take another look at your property

with a critical eye or ask someone you know to critique it. You probably have

a relative or friend with a sharp eye for finding little details that aren’t quite

right. So put these individuals to work helping you identify and correct those

nagging items that detract from your rental unit. Even the best advertising

campaign in the world can’t overcome a poor physical appearance. Making

sure your property looks good on the outside as well as the inside significantly

improves your chances of finding just the right tenants.

The best advertisement for your rental unit is its curb appeal or exterior

appearance. Curb appeal is the impression created when a prospective renter

first sees the building from the street. The importance of a good first impres-

sion is well documented in business and clearly applies in rental housing,

too. A property that has well-kept grounds with green grass, trimmed shrubs,

beautiful flowers, and fresh paint is much more appealing to your prospects

than a property that looks as though it’s seen better days.

Curb appeal can be positive or negative. Positive curb appeal can be gener-

ated by having litter-free grounds, well-manicured landscaping and lawns,

well-maintained building surfaces, a clearly identifiable address, and clean

windows. Any property amenities (such as a swimming pool and parking lots)

should also be clean and well maintained.

Properties with negative curb appeal can be rented, but finding a tenant

often takes much longer. You may have fewer qualified prospects to choose

from, or you may have to lower the rent. Because time is money in the rental

housing business, the lost revenue caused by poor or negative curb appeal

is often much greater than the cost to repair or replace deficient items.

Besides, a well-maintained and sharp-looking property often attracts the type

of tenant who treats your rental property with care and respect — and pays a

higher rent.

Keep in mind that poor curb appeal is the direct result of poor management.

There’s no excuse for poor curb appeal, and no one benefits from it. You can

never regain your lost revenue, and your property value ultimately declines.

Being Aware of Fair Housing Laws

Whether you’re the owner of a single rental unit or a small- to medium-size

multiple unit rental property, you’re subject to Fair Housing laws whenever

you advertise. These laws prohibit advertising that indicates any preference,

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limitation, or discrimination based upon race, color, ethnicity, religion, sex,

familial status, or physical or mental disability. Consequently, any discrimi-

nation in rental housing advertising is illegal and can result in very severe

penalties.

The 1988 Federal Fair Housing Amendments Act also states that rental property

owners and managers can’t

 Target certain groups by advertising in select media only

 Imply a preferred type of tenant through the use of discriminatory lan-

guage, locations, logos, or models in advertising

 Refuse to show, negotiate for, or rent housing

 Refuse to supply rental information or accept applications

 Make housing unavailable

 Determine discriminatory applicant qualification or selection criteria

 Set different rental rates, terms, conditions, or privileges for the rental of

a dwelling

 Direct people to certain parts of a community, building, or floor

 Provide different housing services, facilities, or maintenance

 Enforce restrictions or different provisions in rental contracts

 Falsely deny that housing is available for inspection or rental

 Persuade owners to rent or deny anyone access to or membership in a

facility or service related to the rental of housing

 Post discriminatory notices or statements, or evict a tenant on the basis

of protected class

Following Fair Housing regulations begins with advertising to all qualified

prospects, continues throughout the screening and tenant selection process,

and remains a key issue during the entire tenancy. If you plan to be in the

rental housing business, make sure all your advertising, tenant screening,

and selection, plus your management and maintenance policies, reflect both

the intent and the letter of the law. Also, be aware that Fair Housing laws are

constantly being redefined and expanded. Ignorance of the current law isn’t

an acceptable excuse if your policies and procedures are challenged.

Whenever you have the space available in your rental advertising, be sure to

include the Equal Housing Opportunity logo. This logo may not be an option

in certain ads, such as newspaper classifieds, but it should be included in all

other advertising, like flyers, brochures, community bulletin boards, direct

mailings, and Web ads. You can download the logo for free at HUD’s Web

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Chapter 7: FOR RENT: Generating Interest in Your Rental

site. Just go to www.hud.gov, type Equal Housing Opportunity logo into the

Search bar in the upper right corner, and navigate to the logo homepage. Then

download to your heart’s content!

If you have any questions about discriminatory housing practices, contact the

Department of Housing and Urban Development’s Office of Fair Housing and

Equal Opportunity, which oversees the creation and enforcement of federal

Fair Housing laws. Find it online at www.hud.gov/offices/fheo or call

800-669-9777. (If you’re hearing impaired, call the TTY line at 800-927-9275.)

All rental property owners must comply with federal (and often state and

local) Fair Housing laws. Know the laws for your area and make sure you

don’t violate them, even inadvertently. Check with local landlord-tenant

legal experts, your local apartment association, or the National Apartment

Association (NAA) for more information about Fair Housing laws in your

area. To contact the National Apartment Association, write to 4300 Wilson

Boulevard, Suite 400, Alexandria, VA 22203, or call 703-518-6141. You can

also visit the NAA online at www.naahq.org. Find the location of the NAA’s

Affiliated State or Local Association in your area by checking out the CD or by

visiting the NAA Web site.

Analyzing Your Advertising Options

When it comes to advertising, you need to think like a tenant. Most rental

property owners have been renters at some point in time. You may have per-

sonal experience as a renter looking for the right place to live. Perhaps you

found the search frustrating, or maybe you developed a successful system

for finding quality rental properties at a fair price. Your experience as a

renter can be helpful as you place your ads.

Many rental property owners may remember that, when they began looking

for their own rental years ago, they either drove around the area or sought

out advertising specific to a particular geographic location. Although most

prospective renters nowadays still practice these methods of researching

their rental area of interest, many tenants have realized the advantages of

online rental shopping. These renters ultimately go out to see each rental

property that meets their needs — but not before narrowing their search to

just a few properties via the Internet.

Most renters dislike moving to an unfamiliar area. Although moving is enough

of a disruption in your daily routine, adapting to a completely different neigh-

borhood is even worse. Thus, the majority of renters relocate within the same

geographic area, unless they’re faced with a major change in employment,

school, or another significant factor that requires a distant relocation.

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The following sections outline the different ways you can reach your pro-

spective tenants, from word-of-mouth to the Internet. Use more than one

form of advertising and find your new tenant even quicker.

Talking the talk: Word-of-mouth referrals

Often the best source of new tenants is a referral from one of your rental

property’s neighbors, one of your other tenants, or possibly even the tenant

who just vacated your unit. Many times, referrals also come from coworkers

or friends. Word-of-mouth is often your most effective and least expensive

method of finding new tenants, especially if people like your rental property

or where it’s located.

In the long run, your best source for new tenant leads is other satisfied ten-

ants. So keep your current tenants content and treat your departing tenants

properly with timely accounting and return of any remaining security deposit

balance. Tenants talk, and bad news travels faster than good news.

Many of your tenants or other people who own or rent in the area may have

a family member or friend looking to relocate. Creating a sense of community

in which your tenants have friends in the immediate area can lead to longer

tenancies and lower tenant turnover. This combination translates directly

into improved cash flow for you.

If your tenants or neighbors give you referrals, you may consider rewarding

them or thanking them in a couple of different ways. Regardless of the kind of

reward you give to referring tenants, the key is to make them feel appreciated

for the referral. Here are some ways to reward your referring tenants:

 Referral fee: Typically, referral fees are $50 to $200 in cash or rent

credit, and are only paid after the new tenant has paid the full security

deposit and the first month’s rent and has actually taken occupancy. In

a soft rental market, where the supply of vacant apartments exceeds the

demand, some owners and property managers may even offer referral

fees of up to 50 percent of the first month’s rent. The market conditions

in your area dictate the appropriate level of referral fee for your rental

property. You can also offer a higher amount for multiple referrals.

Some property managers or owners give half of the referral fee upfront

and the other half after the new tenant has lived in the unit for a speci-

fied number of months, in order to ensure the tenant plans to stay a

while. In my experience, however, the referral fee is more effective if the

full amount is paid immediately upon the new tenant taking occupancy.

Although on some occasions the referred tenant doesn’t stay for more

than a month, this situation is usually nothing that the referring tenant

can control, so he shouldn’t be penalized.

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Chapter 7: FOR RENT: Generating Interest in Your Rental

As with all policies, be sure to offer your referral fees consistently and

equally to all tenants to avoid any Fair Housing concerns.

 Improvements or upgrades to the tenant’s rental unit: When cash or a

rent credit is inappropriate (like in states where a real estate license is

required for referrals), you can offer enhancements to the rental unit,

such as installing a new ceiling fan, hanging new wallpaper, cleaning the

carpet, or repainting the unit. Certain types of improvements may have

a long life and stay with the rental unit after the current tenant leaves,

making your rental unit more marketable and justifying a higher rental

rate to a future tenant.

The psychological impact of giving an immediate reward for a referral can be

very motivating. You can also adjust the amount of the referral fee for certain

rental units that may be more difficult to rent or for certain times of the year

when you have more trouble renting vacancies. For example, if you normally

offer a $100 referral fee, you may want to consider offering a $200 fee for any

referral given between Thanksgiving and the middle of January, because this

time of year is often very slow for rental traffic. (No one likes to move during

the holidays or in inclement weather!)

Have any rental applicant referred by word-of-mouth go through the same

tenant application and thorough background check as any other applicant.

Any deviation in your normal application and tenant selection process can

support later allegations that you favor certain incoming tenants. Always

screen every referral carefully, but be particularly careful if the referring

tenant has a poor payment history or has created other problems. Just as a

referral from an excellent tenant often leads to another excellent tenant, a

referral from a problem tenant often leads to another problem tenant.

Showcasing your site: Property signs

A property sign is the first step in most rental property advertising programs,

because it’s one of the most economical ways to promote your vacancies.

The use of a simple “For Rent” sign can be very effective and can generate

great results for minimal cost. In certain areas with limited availability of

rental units, a sign on the property is all you need to generate multiple quali-

fied rental applicants. In the following sections, I explain how to determine if

property signs are an appropriate tactic in your area and, if so, how to make

them work for you.

Weighing the weight of a sign on your marketing efforts

An advantage of the property sign is that callers already know the area and

have seen your building’s exterior. Consequently, the attractiveness and aes-

thetic qualities or curb appeal of a rental property are essential. The rental

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property must look good from the street or else rental prospects won’t even

bother to stop and see the property’s interior.

A disadvantage of signs is that they announce to the world that you have a

vacant rental unit. In some areas, this proclamation can lead to vandalism or

the unwanted use of your property for parties or criminal activity. For this

reason, many rental property owners post rental signs while the unit is still

occupied by the outgoing tenant and then remove the signs when the unit’s

empty. Depending on your tenant and her level of cooperation, you may also

want to indicate on the sign that the current tenant shouldn’t be disturbed.

Often the current tenant is very cooperative and glad to show the rental unit.

But be sure to consider whether the current tenant is your best representa-

tive. Obviously, if she’s leaving under difficult circumstances or her house-

keeping or demeanor isn’t the best, then you may be better off waiting and

showing the rental unit after the tenant has vacated.

Making your signage stand out from the competition

If you choose to put up a property sign, do so as soon as you find out you

have an upcoming vacancy, unless your property’s curb appeal is poor or

signs aren’t allowed. Be sure to use rental signs that are in perfect condi-

tion, with large, crisp lettering that’s easy to read. The condition of the sign

reflects the image of your rental property — whether good or bad. A well-

maintained sign provides a good first impression. A faded, worn out, or tacky

sign is worse than no sign at all. Consider the following when developing and

placing your signage:

 Visibility: Make sure your signage is clearly visible from the street and

the lettering is large enough to read. Ideally, a two-sided sign should be

placed perpendicular to the street so passing vehicles can view it more

easily.

Drive by your property from both directions at the usual speed of traffic

and make sure your sign can be seen and understood easily. The main

objective of property signs is to get the driver’s attention with the words

“For Rent,” or a similar basic message. You want the driver to pull over

and write down the details and the phone number.

 Content: Don’t get carried away or put so much info on the sign that it

can’t easily be read from the street. Include the phone number and date

of availability in a very clear spot. You can also add the number of bed-

rooms and bathrooms, as well as any special features. Clearly indicate

your rental rate on the sign, because you need to make sure prospective

tenants know what to expect. Including the rental rate can even pre-

screen tenants who aren’t financially qualified.

On the other hand, when the exterior of the property doesn’t do justice

to the actual rental unit, you’re better off not including the rental rate on

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Chapter 7: FOR RENT: Generating Interest in Your Rental

your property sign. Because you’re usually not there to show the rental

unit at the time the prospective tenant sees the sign, she may think the

rent is either too high or too low and immediately decide not to call. The

value of some rental units can’t be appreciated until a prospect has seen

the unit’s interior.

 Location: Place your signage in a prominent location. Property signs

don’t work as well if your rental unit isn’t on a busy street or if your sign

isn’t easily noticeable from a main road. Property signs on dead-end

streets or cul-de-sacs are still worthwhile, but don’t expect the kind of

response you’d get if your sign were on a major thoroughfare or arterial

roadway.

If your property is on a side street that’s relatively close to a major road,

you may be able to obtain the cooperation of the owner of a nearby

property with a high-visibility location, unless such signage placement

is prohibited by local law. Approach the owner about the possibility of

placing a rental sign for your property on his land — either on a tempo-

rary basis only when you have vacancies or on a more formal ongoing

basis (with a formal contract drafted by an attorney, outlining rights and

terms and a financial incentive for the owner). Typically, you can expect

to pay the landowner $25 to $100 per month to put your sign on his

property, depending on the size and location of the sign.

Any off-site rental sign should clearly indicate the location of your rental

property. Make sure the property where you place your sign is comparable

to your rental property in terms of curb appeal. A property that’s vastly

superior to yours can actually deter potential renters. Naturally, a property

that has poor curb appeal discourages prospective renters from any further

inquiry into your rental property, even if your property is in much better

condition. As with all signs, first impressions are very important and leave a

lasting image in the minds of your prospective renters.

Broadening your horizons: The Internet

The Internet is available to almost everyone, making this medium an excep-

tional source of prospective tenants for owners of medium to larger rental

properties. But even for owners of small rental properties, the Internet can

be a useful tool to augment the more conventional advertising methods dis-

cussed throughout this chapter. The next two sections break down how to

make Web-based advertising work for you.

Where to advertise online

In the past, major online resources didn’t cater to the small rental property

owner. Now, many online advertisers have seen the success of Craig’s List,

a Web site that features free advertising in many major metro areas (unless

you’re a broker, then you have to pay), and have realized the significant

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number of potential advertisers they’re missing. Prospective tenants want

the option to search specifically for the larger, professionally managed

apartment communities, as well as rental homes and condos or small rental

properties, so most online rental property advertisers have expanded their

listings to include all types.

The opportunities to promote your rental vacancy online have exploded over

the past several years to boast a number of choices both locally and nationally.

Although this list is dynamic with new firms and mergers among competitors,

here are some of the more popular and successful online advertising venues:

 Apartamentos Para Rentar: www.pararentar.com

 Apartment Guide: www.apartmentguide.com

 Apartments.com: www.apartments.com

 Craig’s List: www.craigslist.org

 For Rent: www.forrent.com

 Rent.com: www.rent.com

 RentalHomesPlus: www.rentalhomesplus.com

The Internet also allows you to establish your own Web page. You can post

your marketing pieces on your site and refer potential tenants to the Web

page address right in your advertising. That way, prospective renters can go

to your site and gain additional information at their convenience. Moreover,

when a prospective renter calls, you also have the option of referring him to

the Web page for more information.

What to include in an online ad

The online rental info you can offer is unlimited. Of course, you need to make

sure you get the basics out there before trying anything flashy:

 General geographic location of the unit: Prospects want to know

whether your property is near the places they frequent the most or

whether it’s in a safe part of town. In many cities, the name of your

neighborhood makes an immediate impression on your prospect, which

can be good or bad for you depending upon the reputation of the par-

ticular neighborhood. So if the address may give a negative impression,

leave it out.

 Number of bedrooms and bathrooms: This number is often a major

determining factor for many renters. Always let prospects know what to

expect from your property.

 Major features or amenities: Inquiring minds want to know what makes

your rental property better than all the others in the area.

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Chapter 7: FOR RENT: Generating Interest in Your Rental

 Monthly rent: Listing your monthly rent in your ad lets prospective rent-

ers know your requirements right upfront. Most prospective renters are

scanning through rental ads trying to eliminate the ones that aren’t worth

calling about. Generally, any ad that doesn’t give the prospect enough

information to determine his level of interest is immediately disqualified.

 Telephone number and e-mail address where you can be reached: If

prospective tenants don’t know how to reach you, then you definitely

won’t receive any inquiries about your unit.

 Who pays for the utilities: This bit of info can be a key factor for renters

on tight budgets.

 Whether the unit is furnished: Some renters may not want to hassle

with providing their own furniture; others may not want to use a recliner

or dresser that’s been around the block a few times.

 Address of the property: Include the address unless the rental unit

doesn’t have excellent curb appeal.

With a digital camera, you can place photos of your rental property online. If

you have a wide-angle digital camera, you can even put interior photos online,

which is very helpful if the property is currently occupied and you can’t or

don’t want to bother the current tenant by showing the place. You can also

provide floor plans and detailed directions.

If you’re really computer savvy or know someone who is, you can provide a

narrative soundtrack that augments your online info, or you can just include

some music. Keep in mind though that music can be annoying to many Web

site viewers. The last thing you want to do is run potential tenants off with

your favorite Barry Manilow song, so either choose something more generic

or give your prospects a muting option.

Reading all about it: Newspapers

Until recently, the most commonly used medium for advertising rental proper-

ties was newspaper classified ads. The Internet has since taken over as the best

source for prospective tenants in many metropolitan areas, but local newspaper

ads can still be very effective if you follow these basic advertising rules:

 Attract the reader’s attention.

 Keep the reader’s interest.

 Generate a desire to find out more about your property.

 Convince the reader to contact you for more information.

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Important considerations when using newspaper advertising include where

to advertise, the size of your newspaper ad, what to include in the ad, and

the schedule on which your ad should run. I cover each of these issues in the

following sections.

Which newspaper should you advertise in?

In most metropolitan areas, you have several newspapers to choose from

for advertising your rental unit’s availability. Typically, you have one major

regional newspaper and one or more neighborhood newspapers as well.

Local or neighborhood newspapers are often more reasonably priced and

can reach the renters already in the area. Some local or neighborhood news-

papers even offer free ads. So do you advertise in the local weekly throwaway

or the regional major daily? Unfortunately, there’s no right answer to this

question. You really need to try each newspaper and see which one works

best for a particular rental property.

The key to effective advertising isn’t the overall number of calls you receive,

but the number of dollars per qualified renter you spend on advertising.

Effective advertising in most major metropolitan areas typically costs $20 to

$50 per qualified prospect. So if your Sunday newspaper ad costs $100, you

want to receive inquiries from two to five qualified prospects every time the

ad runs. Of course, you can expect to receive additional inquiries from unqual-

ified prospects, but you can measure the effectiveness of your ad by noting

how few unqualified prospects call in response to it.

Many of the larger newspapers have online editions or relationships with

Internet firms that specialize in advertising rental properties. For example,

the Chicago Tribune partners with Apartments.com so it can offer you a

print ad in its local newspaper and an online ad that can generate calls from

around the nation.

How big should your newspaper ad be?

Newspapers typically offer two different types of rental housing ads: display

and classified. Display ads are much more effective and visually eye-catching;

they’re also significantly more expensive and beyond the needs and budgets of

most small-time rental property owners. Usually, only the owners or managers

of large apartment buildings in your area use display ads on a regular basis.

Owners or property management companies with multiple properties in a

certain geographic area also use display ads, because they’re able to com-

bine several of their rental properties into one large display ad, making the

ad more cost-effective. If you’re a small rental property owner, unless you

have multiple properties with vacancies in the same general geographic area,

use the classified rental housing advertising section of your newspaper.

Wondering how to make a less flashy classified ad stand out to prospective

tenants? The trick is to develop a classified rental ad that’s efficient but

doesn’t place a higher priority on low cost while sacrificing the ability to

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Chapter 7: FOR RENT: Generating Interest in Your Rental

attract and keep a prospective renter’s attention. Your rental ad needs to

be easily readable. One of the best ways to achieve readability in an ad is

through the use of white space. White space is the blank space that makes

your ad stand out from the others, many of which are so crammed with infor-

mation that readers instinctively skip them.

Consider yourself lucky if a prospective renter spends more than just a few

seconds looking at your rental ad. If you can’t attract and keep his attention

in those brief seconds, he’ll move on to the next ad. So when it comes to writ-

ing your ad, you want to provide as much information as possible, while also

keeping the ad readable. But know that the overall size of the ad needs to be

kept to a minimum, or you risk a major shock to your advertising budget.

Most renters actually prefer to rent from small-time rental property owners,

which is why classified ads can be very effective. Classified ads need to be

directed to a specific target market and should stress the particular advan-

tages of a rental property from the tenant’s point of view.

What should you include in your newspaper ad?

Effective newspaper ads (like the ones shown in Figure 7-1) provide the basic

facts (see the earlier section on what to include in an Internet ad for more on

these), plus a hook, which is a call to action that helps your rental ad stand

out from the rest. The hook can be monetary, or it can be an improvement to

the rental property — basically anything that makes your ad grab the pros-

pect’s attention. Offering a tenant the opportunity to select new tile floor cov-

ering in the kitchen or entryway or providing a ceiling fan as an extra bonus

are both excellent hooks.

Even in tight rental markets, providing an incentive for the prospect to imme-

diately call on your ad is smart. For example, you can offer to waive the fee for

the tenant’s credit report if the prospective renter calls the day the ad runs.

The credit report typically costs you less than $20, but this kind of offer makes

your ad much more interesting to most cost-conscious renters.

Figure 7-1:

Good

newspaper

ads like

these can

help you

find the

right tenant

quickly.

#1 Rated Schools!

Hidden Valley executive home. 4 bedrooms, 3 baths, 2250 sq. ft., 3-car garage

pool/spa, fenced yard, lush landscaping, a/c, washer/dryer, f/p, gardener incl, pets

welcome. $1,995/mo. Avail. 7/1. 423 Sycamore Lane. 555-1212

Cherry Hills Close to Everything

Lg. 1 & 2 BR townhouse apts, on bus route. Walk to schools, stores, medical

center. Tennis, pool, spa, no pets. Owner-paid utilities. Furnished units avail.

From $575. Maple Grove Apts. 575 Watson Rd. Mention ad for free credit check.

Daily 9-6. Call (800) 555-1212

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Although leaving out some information saves you money in the cost of a clas-

sified ad, don’t forget that incomplete information either leads to qualified

prospects skipping over your ad or to many unqualified prospects calling and

asking you every question under the sun.

Be careful with abbreviations in newspaper ads. Although abbreviating some

words can stretch your advertising dollar without cutting into your message,

the use of abbreviations often discourages tenants from reading your ad. If

your ad can’t be understood, it won’t generate the phone calls you want. And

if your ad doesn’t generate phone calls, you’ve wasted your time and money. I

recommend using basic abbreviations only if most rental property advertisers

in your area commonly use them.

How often or on which days should your newspaper ad run?

Although the Saturday or Sunday editions of many major metro papers have

the most rental ads, running your ad on these days can be quite expensive.

Newspapers often have specials that encourage you to run your ad for longer

periods of time, which gives you more exposure.

Be sure to change your ad weekly, at least. Tenants often skim ads for several

weeks when they’re beginning to look for a new rental unit. If they see the

same ad for more than a week, they may assume your rental unit is undesir-

able. This advice is also true if you have many rental properties and run the

same ad each week. Potential tenants may incorrectly think it’s for the same

unit every time.

To address or not to address

Opinions tend to differ about including a rental

property’s address in a newspaper ad, but I

generally recommend including it. This informa-

tion gives prospects the exact location of your

property and helps them independently deter-

mine whether it’s one they’re interested in rent-

ing. The only situations in which you shouldn’t

indicate the address in the newspaper ad are

when the curb appeal isn’t up to your high stan-

dards or when the exterior appearance of the

rental unit is deceptive and gives the impres-

sion that the unit is small or undesirable in light

of the asking rent.

If you include directions with your address,

make sure they’re correct and easily under-

standable. Ask someone who’s not familiar

with your rental property or the area to proof-

read your ad to make sure the landmarks, cross

streets, or directions provided make sense. If

rental prospects can’t find your property, you

can safely assume they’re not going to be inter-

ested in renting it. Although a more direct route

to your rental property that goes past the local

landfill may exist, have your prospects take the

next freeway off-ramp and backtrack some-

what to your property to avoid any unpleasant

areas of town. This first impression can be very

important. The advertising and presentation of

your rental property is marketing, and when it’s

done properly, it’ll make your job as a rental

property owner much easier.

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Some newspapers offer discounts if you run the same ad for consecutive days,

but doing so can be expensive. Instead, run a larger ad on the primary rental

housing advertising day and then run a reference ad the rest of the week to

lower your overall cost. For example, if the Sunday edition of your local news-

paper is the primary day for rental housing ads, place a large ad on that day.

Then on Monday through Saturday, run a small, two-line ad that simply states,

“Kensington — 2bd/2ba available soon. See last Sunday’s ad.”

When your ad first appears, be sure to check the newspaper yourself to con-

firm it’s listed in the proper classification and is worded exactly the way you

wrote it. Newspaper ad reps are very skilled at taking down complicated ads

with abbreviations, but mistakes can and do occur. There’s nothing worse

than not receiving any phone calls because your ad was placed in the wrong

classification or because the phone number was listed incorrectly.

Checking your ad for accuracy may be relatively simple if you regularly sub-

scribe to the newspaper. However, if you don’t subscribe to it, be sure to have

your newspaper ad rep send you a tear sheet, a sample of the page on which

your ad ran. If the newspaper makes a mistake in your ad, be sure to notify it

at once and ask for a corrected ad to run at no charge.

Some newspapers offer special ads for guaranteed results. For example, if

your rental property doesn’t rent after your ad has run for a week, a paper

may give you up to an additional week of ads for free. Check with your news-

paper sales rep for planned special sections featuring rental housing articles

and news features. These special sections are written with the renters in

mind and can increase your ad visibility to prospective tenants.

If your rental unit is located near a military installation, be sure to run an ad

in a military newspaper. The military also has housing referral offices at many

bases, and all branches require transferees to register with the housing refer-

ral office. Contact this office with your information.

Papering the neighborhood: Flyers

Distributing and posting flyers informs the neighbors that you have a rental

unit available, which can be helpful to them because they may know some-

one who wants to live close by. You can use flyers to direct people to more

information (including maps and additional photographs) on a Web site. See

the earlier section, “Broadening your horizons: The Internet,” for the scoop

on using the Net to advertise your property.

Flyers allow you a lot more space in which to describe your rental unit. You

can go into detail and list many of the features that aren’t cost-effective to list

in a newspaper ad.

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Par t II: Renting Your Proper ty

The cost to reproduce flyers is very nominal and can run about $5 for 500

black-and-white flyers on white paper stock. For an extra $5, consider print-

ing your black-and-white flyer on colored paper. If you really want to stand

out, you’ll need to pay about $25 for 500 color flyers. The extra money is

well worth it. Although keeping your costs low is always important for rental

property owners, remember that you may be losing $20 to $40 each day your

rental property sits vacant — and that’s money you never get back again! So

if you have a rental property that looks great with a four-color flyer, spend

the extra $20 and generate those important rental leads today!

In the following sections, I explain how to create and distribute flyers for the

maximum positive impact on your rental property.

Making high-tech flyers

With the wide availability of word processing programs, making great-looking

rental flyers that contain all the pertinent info, plus a photo and a map, is very

easy. Although the widely used word processing programs have everything

you need to make basic flyers, I highly recommend you invest in basic desktop

publishing software. Several great desktop publishing programs are available,

but three of the easiest to use are Microsoft Publisher, PrintMaster Gold, and

Broderbund’s PrintShop. These programs have templates that simplify the pro-

cess and provide you with the graphics and additional features to make your

flyer look sharp.

Another invaluable tool for all rental property owners is a digital camera,

which helps you prepare advertising that works! A high-quality photo can

easily separate your rental property flyer from the others that may be circu-

lating at any given time. Check out Figure 7-2 for a great example of a flyer

that effectively uses photos to draw attention to a property.

Some people think a handwritten flyer actually has greater appeal and implies

that the owner is a nonprofessional who has a rental unit at a below-market

rental rate. This reasoning may be true, but I believe having a sharp, easy-to-

read, typeset flyer with a high-quality photo and detailed map provides superior

results.

Although your goal is to rent your property quickly, the reality is that you’ll

be marketing your rental unit over a couple of weeks. This guideline is par-

ticularly true if you’re able to start your marketing during the current tenant’s

notice period. One of the problems with flyers (just like political placards) is

that it’s difficult to know which ones are current and which ones are stale. I

recommend putting a date on your flyers and keeping them fresh. You should

also consider having a series of flyers with a different look, each promoting a

different open house. Include the monthly rent on your flyers so prospects can

immediately determine whether your rental property is in their price range.

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Chapter 7: FOR RENT: Generating Interest in Your Rental

Figure 7-2:

Flyers are a

great way

to attract

attention to

your

property.

Executive Home for Rent

The top-rated Horizon school district and plenty of room! 4-bedroom, 3-bath executive home with over 2,250

square feet of living space and a 3-car garage. Master bedroom suite has over 500 square feet and large walk-in

closet. Other bedrooms are oversized with large closets. Plus, a large home office with shelves. Large fenced

backyard is perfect for children and pets. Pets are welcome! Separate fenced pool and spa. Lush, mature

landscaping, air conditioning, full-size washer and dryer included. Fireplace in family room, formal dining

room with bay window, upgraded appliances. Side-by-side refrigerator, double oven, range top, dishwasher,

disposal, trash compactor, shutters, intercom, and CD stereo system throughout home, built-in bookcases and

lots of storage. Available on 7/1. 423 Sycamore. $1,995 per month. First month's rent plus $2,000 security

deposit will move you in!

Call 555-1212 today and mention this flyer for a free credit check.

Distributing flyers

The key to success when it comes to flyers is distribution. Either pass out

your flyers personally or consider hiring a reliable individual to distribute

them door-to-door in the area where your rental unit is located. You can also

have the flyers distributed to locations that current and prospective renters

are likely to visit.

Make sure your flyers are never placed into the official U.S. mail receptacle,

because doing so is illegal. If you’re considering direct mail distribution, con-

tact a firm that specializes in direct mail services.

Although it’s often suggested that renters look for a new rental in the last two

weeks of the month, I’ve noticed that in most areas you can always find rent-

ers on the market throughout the entire month. Begin distributing your flyers

as soon as possible. Each week, distribute the latest version with the current

info and dates so that they’re fresh.

Flyers can be targeted to a specific geographic area and can be very effective

in reaching good rental prospects. You can distribute flyers to local employ-

ers who often have housing referral offices or employee bulletin boards, or

you can post them in the housing referral offices at local military installations

and universities. Be sure to receive permission before posting your flyers

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or else they’ll quickly disappear, and you’ll have created enemies instead of

allies who can help you fill your vacancies! Flyers, like all forms of advertis-

ing, are only as good as their distribution, so be sure to distribute them in the

high-traffic areas where renters are most likely to see them.

Focusing on rental publications

Most major metropolitan areas have one or more rental publications that

offer display advertising of rental properties. Following are two widely circu-

lated rental pubs (both of which also have a presence on the Web):

 For Rent offers biweekly, full-color rental advertising for most major cities

with 61 publications covering more than 190 markets. It offers

/4-,

/2-, and

full-page ads, which are generally listed by geographic area. For Rent has

a handy index that allows prospective tenants to search for certain fea-

tures. This pub promotes the fact that its biweekly format allows owners

and property managers to change ad content more often. For Rent also

offers a Spanish language publication called Apartamentos Para Rentar in

many areas of the country.

 Apartment Guide is available monthly with more than 90 editions for the

major metropolitan areas in 39 states. Its page format is smaller than

For Rent, and it says that its size is an advantage, because it’s easier

for rental prospects to carry and use. Apartment Guide offers full-color

/2- and full-page ads, and it categorizes the ads in sections that relate to

certain geographic segments of a metro area.

Rental publications are primarily designed for the larger rental housing com-

munities and are a cornerstone of these communities’ marketing programs.

Most rental publications offer smaller display ads designed for medium-size

rental properties. However, unless your rental property has several vacancies

at the same time, using a rental publication may not be cost-effective.

Strategic distribution equals success in all advertising. Rental publications

demonstrate this truth clearly as they battle for positioning on the shelves of

major grocery stores and convenience store chains. They race to get the best

locations for their curbside racks and make sure that all the major employers

and military bases have a good supply of their latest issues. In most major met-

ropolitan areas, rental publications are a dominant source of rental traffic.

If you’re thinking about advertising in a rental publication, take the time to deter-

mine which one has the best distribution in your area for your target market.

For example, you may have determined that the local hospital and medical ser-

vices facilities just a few blocks from your rental property are potentially a great

source for rental prospects. If you find that only one rental publication is dis-

tributed on-site to employees, start evaluating it to see whether it can offer you

advertising that meets your needs and is within your budget.

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Chapter 7: FOR RENT: Generating Interest in Your Rental

Creating chat: Community bulletin boards

Community bulletin boards can be very effective advertising avenues in

certain small areas or college towns. Often the local self-serve laundries,

pharmacies, hospitals, or grocery stores have bulletin boards where you can

post information at no cost. You may find that you’re limited to a 3-x-5 card,

but you can tailor your posting to the people who’ll be most interested in and

attracted to your rental property. Post several identical cards so that inter-

ested prospects can simply take a card with them. This tactic also allows

you to use the back side for more information, including a detailed map and

directions to your rental property.

If your rental property has unique features, like a garage or large backyard,

you may have some additional promotional opportunities. Carefully evaluate

your rental property and determine its unique aspects and the specific target

market most interested in these specific elements. For example, a rental prop-

erty with a large yard appeals to renters with pets, so a listing on the bulletin

boards found at the local pet store may reach that specific target market.

Likewise, a rental property with a garage appeals to patrons of an auto supply

or hardware store.

As with any ad in which the property address is clearly stated, a disadvantage

to this advertising technique is that you may be promoting your possibly

vacant rental unit to some people who may be more interested in having a

party or stealing your appliances than renting the unit. One way to minimize

this problem is to post on community bulletin boards while the unit is still

occupied and clearly state that the rental property will be available at a future

date. You should also consider indicating that the current tenant shouldn’t be

disturbed.

Going where the jobs are: Local employers

The local employers in your area are a great source for rental prospects.

Employees of these companies most likely have stable jobs and are looking

for long-term rentals. Many companies have employee assistance or housing

referral offices that work with their employees to help them find reasonably

priced housing. Most rental properties located in metropolitan areas are

located near at least one major employer. As a sharp rental property owner,

you may have already determined that the employees of certain major firms

are part of your target rental market.

Likewise, the major firms in your area have a vested interest in their employ-

ees being able to find good-quality and affordable rental housing in close

proximity to their location. Progressive employers are always looking for

inexpensive ways to assist their employees and improve morale. To capital-

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ize on this desire, you can offer all employees of companies that participate

in your corporate referral program an incentive to rent at your property. This

incentive can mean waiving the application fee, allowing the security deposit

to be paid over the first 90 days, or even discounting the monthly rent.

Meandering through other tactics to try

If the other marketing tactics listed in this chapter don’t appeal to you, you may

find success through property brochures, direct mailings, leasing agencies, or

broker referrals. Although most owners of small- to medium-size rental proper-

ties don’t find these services advantageous, you may want to consider the

following as part of your marketing plan:

 Property brochure: A property brochure isn’t necessary for most small

rental property owners. However, if you have a rental property with more

than ten units, you should seriously consider developing a basic one. The

benefit of a rental brochure is that the prospective tenant can take the

information with her and easily share it with a coapplicant. I recommend

a simple tri-fold brochure that can be printed on both sides of 8

/2-x-11-

inch paper. With a basic word processing or desktop publishing program,

you can easily create a customized brochure for your rental property. It

should include a floor plan and an area map that highlights the key places

for employment, shopping, schools, and transportation.

 Direct mailings: The key to success with direct mailing is to have a good

flyer or brochure combined with a mailing list that reaches your target

market. If you’ve already developed your flyer or brochure, using this

same marketing piece in a direct mail advertising campaign is a natural

next step. Of course, like all advertising, direct mail is only effective and

cost efficient if you can get your specific marketing piece into the hands

of a prospective renter for your rental property when he’s looking for a

place to rent. Use an outside direct mail firm for the most time- and cost-

efficient handling of direct mail.

 Leasing agencies: Leasing agencies, or rental locator firms, often have

working relationships with major corporations and relocation services

and have excellent tenants looking for high-end rentals, usually in major

metropolitan areas. Some offer their services for no charge to the renter

and are compensated by the property manager when the prospect signs

a rental contract. Other leasing agencies charge tenants for their service

and are only compensated when they find a rental unit that meets the

renter’s needs.

Tenants relocating to an area typically don’t have the time to search

for a rental property and want the leasing agency to handle matters for

them. They also aren’t often candidates for purchasing a home, because

they’re only staying for a specific assignment or because they want to

rent in the area before making a purchase decision. You often encounter

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Chapter 7: FOR RENT: Generating Interest in Your Rental

a trade-off with these renters: They’re usually very well qualified, but

they’re not as likely to rent long-term. But the reality is that not all ten-

ants stay for a long period of time anyway, and if you know that a certain

tenant will only be with you for a set period (such as a one-year lease)

you can adjust the rental rate to reflect this rental term.

 Broker referrals: Besides selling real estate, many real estate agents are

also in the business of referring renters to property managers. Many of

the calls real estate agents receive are from individuals relocating from

other areas who contact an agent inquiring about a future home pur-

chase. Although they may have long-range plans to purchase, they often

rent while they become familiar with the area.

Real estate agents don’t mind referring renters to an owner or property

manager, because they know that today’s renter may likely be tomor-

row’s home purchaser. Real estate agents are also very interested in

referral fees from owners or property managers. Although the referral

fee may be a small amount of money compared to the potential com-

mission the real estate agent can earn on a sales transaction, agents are

willing to be patient and accept a small reward in the short run, knowing

that the big money will be earned down the road.

Check the laws in your state, because some states prohibit the payment

of commissions to anyone other than real estate licensees.

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Chapter 8

Handling Prospects When They

Come A’Calling

In This Chapter

 Realizing the value of first impressions

 Using technology to your advantage

 Making the most of your phone

 Getting your prospects to visit your rental property

n virtually all instances, the landlord-tenant relationship begins with the

initial rental inquiry. This inquiry can be a traditional phone call or an

electronic communication, such as an e-mail. If you successfully master the

proper handling and prequalifying of rental prospects and become skilled at

selling prospects on your rental property, you’ll find owning and managing

rental property to be a profitable and pleasant experience.

Armed with the info in this chapter — and some practice — you can become

adept at quickly screening prospects and convincing the qualified ones

that you have the rental unit they want. In this chapter, I explain the impor-

tance of preparing for communication with prospects, using the phone and

electronic media as effective marketing tools, and handling prospects all

the way from the first contact to the rental showing.

Understanding Why First Impressions

Are Important

Most everyone knows the old adage that you only get one chance to make a

first impression. That’s sage advice for most businesses, but it’s especially

true when people are looking to make such an important decision as which

rental property will be their next home.

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As a rental property owner and manager, it’s easy to see that the correlation

between successfully attracting and securing long-term tenancies with

qualified tenants can be influenced by that first impression. Your rental

property isn’t the only one on the market, and your rental prospects have

many options, so remember that you’re competing for the best renters with

everyone in your area who has a vacant rental property. You need to make a

positive impression to stand out from your competition.

Do you ever go to a restaurant and feel like everything is so chaotic that

you’re never going to get the best service or meal? You probably leave and

don’t even give the restaurant a chance to surprise you with a good experi-

ence. This behavior is human nature, and the same concepts are true in

rental housing. Everyone’s looking for the piece of mind and reassurance that

they’re making the right decision about something very important — where

to live.

Being organized and professional from your very first contact through

the entire rental process instills confidence in your prospective tenants that

you have the ability to meet their housing needs. A professional attitude

and presentation also let them know that if problems occur with the rental

property, you’re likely to address their concerns promptly.

The way you advertise or promote your rental property is part of making the

first impression in rental housing, but the chief impression-making factor is

that very first time you have contact on the phone or in person with prospec-

tive tenants. One way to make a positive first impression is to be organized

and professional, and using technology helps you achieve this state by being

easy to reach and responsive to rental inquiries. Nothing turns off rental

prospects faster than an inability to get in touch with you. Even the most

diligent prospects only call once or twice before giving up and moving on to

other rental properties. Of course, if you answer prospects’ calls promptly on

your cellphone but are distracted because you’re at the grocery store or your

child’s soccer game, don’t expect to secure a rental property showing.

You also need to be prepared with all the information necessary to present

your rental property in the best light to your prospects and to answer their

questions. Remember each of your contacts with every rental prospect by

taking good notes on tracking forms so that you can recall which features

prospects like most about your rental property, as well as any concerns they

express. People like to feel important and that they’re really being listened to.

Being able to recall prior conversations or correspondence can be a powerful

tool in ultimately closing the sale and securing a rental contract.

After your prospects are willing to make a commitment and apply for your

rental property, you need to have your rental application and rental contract,

with all addendums, ready for their review. A disorganized rental property

owner doesn’t get a second chance. Being prepared allows you to focus

your energies on evaluating each rental prospect to find the most qualified

applicant who’ll be your next long-term tenant.

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Chapter 8: Handling Prospects When They Come A’Calling

Making the Most of Technology

The goal of advertising your rental property is to reach the pool of qualified

prospective renters who’re currently looking for a new rental property and

inform them that you have one that may be desirable to them. When your

advertising and promotion generate interest in your rental unit, expect a

ringing telephone or a flooded e-mail inbox. Many of the online advertising

options explained in Chapter 7 allow prospective renters to immediately

contact you via e-mail, or even submit their rental applications electronically.

This e-submission is a great feature for rental prospects from out of town, but

it most certainly doesn’t replace the benefits of the traditional telephone.

If your rental prospects can’t reach you, they immediately lose any potential

interest in you and your rental property. So you need to make sure you can be

easily reached by prospective tenants — and current tenants — at all times.

Advances in telecommunications technology have made rental housing

management much more efficient today than it was even just a few years ago.

However, with so many options, you need to know how to use communica-

tions technology effectively and efficiently. In the following sections, I cover

the basics of doing just that. Later in this chapter, I share more specific

information on using the telephone in particular — because the telephone

is still your main link to your prospective tenants.

Using your phone to your advantage

The telephone is traditionally your primary way of staying in touch with

prospective tenants. Although the recent trend toward electronic communi-

cation, especially for an initial inquiry in response to an online ad, has made

keeping in contact with prospective tenants much easier, the telephone is

still your main communications tool.

Because of the limitations and misunderstandings that can occur with

short, cryptic e-mail messages, the telephone will forever have an important

role. Its direct, instantaneous form of two-way communication still offers the

best means of communicating when a prospect is considering your rental

property. Prospective tenants have many questions that can’t be simply

answered via e-mail. Likewise, you want to be able to ask them important

questions to make sure they meet your rental criteria.

Using the telephone isn’t just about putting your phone number in your

classified ad or on your rental sign. Today’s telephone comes with all kinds

of special features that can help you manage your property more effectively.

I cover these features in the following sections.

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Call forwarding

If you’re advertising a property for rent and the only contact number you

provide is your home number, for example, but you work outside of the

home all day, you won’t be available to take the incoming calls you need. If

this is the case, you may want to consider using a cellphone where you can

be reached during the day, or where you can at least be immediately notified

of incoming calls.

If you don’t want to list your work phone number in your advertisements,

you can still use your personal cellphone, your home phone (if you have

one!), a separate rental property phone line you’ve established, or a pager by

enabling the call forwarding feature available through most phone companies.

With call forwarding, you simply set up your phone to forward all calls to

another phone number — basically any number where you can be reached.

And you can turn the call forwarding off when you return home.

Caller ID

Another great phone feature you can use to increase your time manage-

ment efficiency and lower your costs is caller ID. When you pay for caller ID

through your telephone company, your phone displays the phone number of

The telephone’s importance

in property management

Some property management books recommend

never placing your phone number in your rental

ads. Instead, they suggest you market your

rental property strictly by advertising and by

holding open houses where interested tenants

can all view the property at the same time. The

concept of an open house is very good, but not

until you’ve prequalified the rental prospects.

In my experience, omitting your phone number

from your ads eliminates a large number of

qualified rental prospects who don’t have the

time for or interest in racing all over town to

attend open houses at rental properties that

may not even meet their needs. Your most

qualified rental prospects are often people

who value their time very highly. Consequently,

the Internet and e-mail can be useful for your

prospects by helping them solidify their interests

in your property. But that’s where the usefulness

of electronic communication ends. Ultimately,

your prospects need the type of specific

information they can only receive through a

phone call.

You may think that you’re able to conserve some

of your own time by not accepting phone calls,

but you’ll have a different opinion after your first

three-hour open house where only a couple of

unqualified rental prospects show up. Or, even

worse, you may not get any prospects at all.

Now that is a counterproductive afternoon!

Spend the necessary time talking with your

prospects. Don’t just take the quick and easy

route offered by electronic communication.

E-mail plays a prominent role in communica-

tions during a tenancy, but the telephone is

your primary business tool when dealing with

prospective tenants.

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Chapter 8: Handling Prospects When They Come A’Calling

the party placing the incoming call. Caller ID is a great way to get the return

phone number of your prospective renters in case they neglect to leave their

contact information for you. But remember that when you call your prospec-

tive tenants, they likely also have caller ID, so be sure to call from a phone

number you don’t mind revealing to them. If you don’t have a number like

that, you can enable the feature that blocks your phone number from being

displayed.

Why do you need to have the telephone number of a prospective renter?

Having a prospective renter’s number allows you to call her back and follow

up with more information or get an update on her rental status. You can also

use her number to reconfirm an appointment to see the rental property. And

later, during the applicant screening process, you can use the phone number

as a cross-check when she submits her rental application to be sure she’s

giving you the correct information.

Voice mail

As a rental property manager, you should have a voice mail system or an

answering machine that can handle calls 24 hours a day. The outgoing

voice mail or answering machine message should provide callers with your

digital pager number or your cell number in case of emergencies. (This info

is important for current tenants, and it lets prospective tenants know you’ll

be there for them if they need you.) You can also record detailed info about

the rental property for your prospective tenants; this tactic helps tenants

prescreen themselves. They won’t waste their time — and yours — if the

property you describe is out of their price range.

Most renters spend quite a bit of time browsing online and looking through

various rental housing publications. They typically make many phone calls

before beginning the process of physically looking at a rental property. As a

result, you want to make the information-gathering process as smooth and

efficient for your prospective renters as possible because you’re competing

for the top qualified prospects.

Renters are interested in knowing certain basic information up front, allow-

ing them to narrow their choices. Many renters may not even be aware of

this fact, but subconsciously they’re often looking for any excuse to eliminate

your rental property from their list. To keep their attention, you need to

develop an information system for your rental property that makes renters

feel relaxed, comfortable, and interested in actually seeing your property.

In addition to your name, include on your voice mail system or answering

machine recording the following information about your rental:

 Location, including directions

 Number of bedrooms and square footage

 Rental rate and security deposit requirements

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 Qualifying information, such as minimum income and whether pets,

excluding service animals, are accepted

 Property features and benefits

Provide callers with a Web site address, if you have one. On the site, you

can include photos, plus the preceding information, and allow prospective

tenants to prequalify if they’re interested in learning more about your rental

property or seeing it in person.

As with all forms of communication, if your rental prospects leave messages,

you need to be able to return their calls promptly, or you can expect to lose

them to your competitor. The most qualified renters are the ones who get

snapped up first, and these are the tenants you really want. Don’t let them

get away!

Knowing which devices you need

In addition to the telephone, standard equipment for many rental property

owners includes the following:

 Cellphone: A cellphone is virtually mandatory for rental property

owners. It’s an invaluable way to instantly keep in touch with your

current tenants, as well as prospects responding to your ads or signs.

 Personal digital assistant (PDA): When you’re planning appointments

with contractors or prospective tenants, you can immediately record

your schedule on your PDA, which is a small, hand-held computer. With

many PDAs, you can download and synchronize your mobile database

with your main PC back at your home or office.

 Digital pager: A digital pager allows callers to leave either a voice

message or an alphanumeric message entered through the caller’s

telephone or typed into a computer keyboard.

Preparing for Rental Inquiry Phone Calls

Whether you were ever a Boy Scout or not, you’re probably familiar with the

Boy Scout motto, “Be prepared.” This motto applies to the management of

rental properties in many ways, but one of the most important is being pre-

pared when the telephone rings. If you handle rental inquiry calls properly,

you not only make your life much easier but you also get the tenants you

want. In the following sections, I discuss the importance of preparation and

the steps necessary to make sure you’re ready when the phone rings.

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Chapter 8: Handling Prospects When They Come A’Calling

Even though it may not be the first information your prospects receive about

your rental property with so much now found online, the rental inquiry phone

call is a critical step that marks the beginning of the rental process. The pur-

pose of this call is to get to the next step: showing the rental unit. Master the

art of the rental inquiry phone call, and most of the time you can set appoint-

ments with only qualified rental prospects. And that’s the name of the game in

property management!

Having the basic tools ready

Advertising costs you a lot of time and money, so you don’t want to begin

looking around for a pen, some paper, and your notes about the rental prop-

erty when the phone starts ringing. You also don’t want to take phone calls

on your PDA or cellphone if you’re not in a position to devote the proper

attention to the caller. Rental prospects can tell the difference between

Working vacation

I enjoy traveling and need to stay in touch with

my property management office, so I always

like to have the latest high-tech communication

devices. Throughout the more than 30 years

I’ve been in property management, I’ve seen a

tremendous evolution in technology — from the

large brick that was my first cellphone in the late

’80s to the latest-generation BlackBerry I now

use. Today’s PDA combines e-mail, cellphone,

contact database, calendar, and Internet all in

one — something unheard of in the early days

of cellphones.

The ability to be contacted anytime, anywhere

has its pros and cons, but I feel this increasing

communication technology allows me to travel

more than in the past and still be available as

necessary to properly manage my rental prop-

erties and interact with my tenants, vendors,

and staff. Now I can travel to most parts of the

globe and still receive e-mail messages and

phone calls on my trusty PDA. Of course, this

accessibility can lead to unpleasant surprises

on your bill when you receive a nonemergency

call from your tenant that was billed at $8 per

minute. Be sure to check with your communi-

cations provider about roaming charges before

traveling and find out the most effective way

to communicate from your anticipated travel

destination.

An alternative to having your own PDA is making

use of Internet cafés or the expanding number

of locations offering wireless Internet access.

With these sites, you can find inexpensive

Internet connections virtually anywhere in the

world and access Web-based e-mail through

a number of services (such as Google Gmail,

Microsoft Hotmail, and Yahoo! Mail).

Trust me when I say that the advances in tech-

nology are extremely important for efficiency

in owning and managing your rental property,

and allowing you the opportunity to find some

rest and relaxation. Isn’t technology at work a

wonderful thing?

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the prepared rental property owner and the one who doesn’t seem to have

a clue. They also form an impression of how you’re likely to handle any

problems they may encounter with the rental unit in the future. Most sharp

renters (and those are the ones you want) are looking for a professional,

businesslike rental property owner, so that’s what you need to be.

The benefits of a professional phone technique are one of the main reasons

I recommend having a separate business location for the management of

your rental properties. This location doesn’t have to be a separate office in

a commercial setting; it can simply be the corner of your bedroom or an

office at home. Consider having a separate phone line as well. A separate

phone line allows you to quickly distinguish between personal phone calls

and rental business phone calls. It also helps you treat each kind of call

accordingly.

You can find many great resources on the proper use of the telephone in

business, and the very first advice these resources typically offer is how to

answer the phone and what to say. But when it comes to the management

and leasing of rental properties, I believe that success with the telephone

begins with being prepared to use it before your first rental inquiry call. In the

next few sections, I cover some basic tools to have on hand before your first

call comes in.

Telephone Prospect Card

A Telephone Prospect Card, like the one shown in Figure 8-1 and available on

the CD, can assist you in gathering information from your rental prospect such

as his name and telephone number, how he heard about your rental unit, and

his particular needs in terms of move-in date, size, and other requirements.

This information can help determine whether your rental property meets the

needs and wants of your prospect.

You can also use the Telephone Prospect Card whether you show your rental

property to a prospective tenant or need to follow up on qualified rental

prospects. Finally, you can use it to track the rental advertising source,

which allows you to make sure you continue using only the advertising media

that pay off.

One of the primary reasons to track your rental calls is so you can clearly see

the results generated by your advertising. The number of generated phone

calls isn’t the most important factor in determining which advertising medium

is the best for your rental property. The key factor is the number of qualified

rental prospects. In an ideal situation, getting just a few calls from very quali-

fied prospects is much better than getting a number of rental inquiries from

unqualified prospects (which is just a waste of your valuable time).

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Chapter 8: Handling Prospects When They Come A’Calling

Figure 8-1:

Telephone

Prospect

Card.

Telephone Prospect Card

Name ____________________________________ Date of initial call ____________ Time _________

Current address ____________________________ City _______________ Daytime Phone ____________

Rental location (s) discussed ______________________________________ Cell Phone _______________

How did you learn about our rental? ________________________________ Email ___________________

When will you need to move in? ____________________ How many bedrooms do you need? _________

How many people will be living in the rental? __________ What size rental are you looking for?

_______

What would you feel comfortable with as a monthly rent? _______________________________________

What do you do for a living? ______________________ Do you work? ___ Where? __________________

Where are you living now? _______________________ How much parking space do you require? ______

What is wrong, if anything, with your current rental property? ____________________________________

Why are you looking to move at this time? ____________________________________________________

What types and sizes of pets do you have? ___________________________________________________

When can you drive by the rental property? ______________ Mentioned Equal Opportunity Housing? ____

What other rental properties have you seen/plan to see? __________________________________________

Notes

_________________________________________________________________________________

______________________________________________________________________________________

Follow-up

Rental location(s) shown _______________ Date shown ___________ Quoted rent/deposit

_____________

What did prospect like best about the rental unit? _______________________________________________

Objections, if any? _______________________________________________________________________

Most important features and amenities to prospect ______________________________________________

Rental application completed? __________ Holding deposit? _________ Date to follow-up ____________

Property Knowledge Sheet

One of the best ways to answer your rental prospect’s questions is to prepare

a Property Knowledge Sheet for each rental property location. This document

(check out Figure 8-2 and the CD for an example) contains all the basic infor-

mation about your rental property, such as the size and type of the unit and

the unit number if it’s in a multi-unit property. Additionally, it should include

the unit’s age, type of construction, and other important details.

A thorough Property Knowledge Sheet also contains important information

about the local neighborhood and general area. Just like the Chamber of

Commerce or Visitor’s Information Bureau, you want to be able to answer

questions about your locale. Rental prospects are very interested in knowing

about employment centers, transportation, local schools, childcare, places

of worship, shopping, and medical facilities. You can really make a positive

impression on your rental prospect if you can tell him where the nearest dry

cleaner or Thai restaurant is located.

You want to have all this vital info from your Property Knowledge Sheet at

your fingertips so that you can be ready to answer your rental prospect’s

questions. The more you know about your property and the surrounding area,

the more easily you can find some important reasons for your rental prospect

to select your unit over the competition’s.

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Figure 8-2:

Property

Knowledge

Sheet.

Property Knowledge Sheet

Property Information

Rental address ________________________Unit # ______ City ________________ Zip code ________

Office hours (if any) _____________ Square footage of unit(s) ___________________________________

Unit mix—Studios ____ 1 Bedroom ____ 2 Bedroom/1 Bath ____ 2Bedroom/2 Bath ____ Other _______

Rent—Studios _____ 1 Bedroom _____ 2 Bedroom/1 Bath _____ 2Bedroom/2 Bath _____ Other _______

Application fee __________ Security deposit _______________ Concessions ________________________

Age of rental ___________ Type of construction _______________ Parking ________________________

Recreational facilities _________________________ Laundry ________________ Pets _______________

Storage _______________________ Utilities (who pays?) ___________________ AC/Heat ____________

Appliances ____________________________________________ Floor coverings ____________________

Special features/comments _________________________________________________________________

________________________________________________________________________________________

Community Information

School district ___________________ Grade school _______________ Jr. high _____________________

High school _____________________ Jr. college __________________College _____________________

Trade school ____________________ Pre-school (s) ____________________________________________

Childcare _______________________ Places of worship ________________________________________

Police station ____________________ Fire station _________________ Ambulance __________________

Electric _____________ Natural gas _____________ Telephone _______________ Cable _____________

Water ______________ Sewer __________________ Library _____________ Post office _____________

Hospital ________________________ Pharmacy ___________________ Vet ________________________

Other medical facilities ____________________________________________________________________

Nearby employment centers ________________________________________________________________

Transportation ___________________________________________________________________________

Groceries ________________________Other shopping __________________________________________

Local services ____________________________________________________________________________

Restaurants ______________________________________________________________________________

Comments _______________________________________________________________________________

_________________________________________________________________________________________

Rental Market Information

Rental competitors/rental rates/concessions ___________________________________________________

_________________________________________________________________________________________

Our competitive advantages ________________________________________________________________

_________________________________________________________________________________________

Our disadvantages ________________________________________________________________________

_________________________________________________________________________________________

This document can definitely give you the edge over your competition.

Particularly with the advent of the Internet, many rental prospects know

more about the area and the other rental options than you may know without

doing your research. Because you often find yourself competing with large

multi-family rental properties, you need to be prepared to answer important

questions about both your rental property and the surrounding area. Often

immediately knowing a detail, such as whether your prospect can find a

certain childcare center locally, can make the difference between success

and failure.

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Chapter 8: Handling Prospects When They Come A’Calling

The time you spend answering all the rental prospect’s questions can provide

you with useful information. Be sure to take good notes about the source of

your rental traffic and any important comments made by each prospect.

Then you can improve your results by incorporating this feedback into your

future advertising for that same rental property.

For example, maybe prospective renters indicated that they had trouble

finding the property. This is a common problem and one that successful

rental property owners know is a serious challenge to success. If your pro-

spective renters can’t find the property, it’s unlikely they’ll rent from you.

Remember: You’re competing with a lot of other rental property owners, and

the best-qualified renters don’t need to make extraordinary efforts to find a

good-quality rental property.

Comparison Chart

You may find that you have a vacancy in a soft rental market, when the rental

market has a lot of rental units available for prospective tenants. Using a

Comparison Chart can be very helpful in this kind of market, especially if your

rental property has distinct advantages over others nearby. A Comparison

Chart is really a marketing strategy commonly used by the owners and

managers of large rental properties, but the concepts of it are very helpful

for the owners of small- to medium-size rental properties too.

A Comparison Chart can

 Provide very useful information to prospective renters who may not

be aware that they’re comparing apples to oranges when looking at

various rental properties: Comparison Charts are particularly useful to

rental property owners who may have a competitive advantage that’s

not readily apparent to uninformed prospects. For example, your rent

may be slightly higher than the rent charged by your competition, but

you may pay for the utilities, whereas tenants at your competition’s

apartments have to pay for their own utilities. This scenario is becoming

a more likely example with the advent of many larger properties install-

ing submetering for utilities, as discussed in Chapter 17.

 Level the playing field and allow you to inform your prospective

tenants of the actual costs of your rental housing (and the competi-

tion’s housing): Another potential advantage of your property may be

that your rental property has reserved parking, but the competition

requires its tenants to scramble for parking spaces on the street. Or

maybe your rental units have much more square footage than the com-

petition. Many older properties are more aesthetically pleasing, with

mature landscaping and beautiful shade trees. These are all factors that

may not be readily apparent to prospective renters, and they can give

you the upper hand over the competition.

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Check out Figure 8-3 for an example of a Comparison Chart highlighting four

properties. In looking at the chart, prospective tenants can see that although

Sunshine Apartments has the lowest rent, when you add in the $75 monthly

utilities, its tenants are paying $25 more per month than they’d pay at Maple

Grove, and they don’t get the reserved parking, on-site maintenance, lush

landscaping, or free credit check. In this situation, Maple Grove Apartments

is the obvious better deal for tenants, even though the monthly rent is higher.

Madison Avenue Apartments and Camelot Townhomes, however, when the

utilities are taken into consideration, both level out at $700 per month. But

Madison Avenue Apartments has better landscaping and Camelot Townhomes

has reserved parking. In this situation, tenants would need to decide which

of these perks is more important. The key point: By providing an honest

Comparison Chart, you’re saving your prospective tenants legwork and

highlighting the advantages of your apartment over others. The CD has a

blank template you can use when making your own comparisons.

Figure 8-3:

Use a

Comparison

Chart to

highlight

your

property’s

competitive

advantages.

Comparison Chart

Property Rent Owner

Paid

Water

and

Heating

Tenant

Paid Water

and

Heating

(with

estimated

costs)

Reserved

Parking

Onsite

Maintenance

Lush

Landscaping

Free

Credit

Check

Sunshine

Apartments

$600 No Yes

($75/month)

No No No No

Madison

Avenue

Apartments

$625 No Yes

($75/month)

No No Yes No

Maple Grove

Apartments

$650 Yes No Yes Yes Yes Yes

Camelot

Townhomes

$700 Yes No Yes No No No

Answering the phone

As your key marketing tool, when your rental phone line rings, you need to

stop what you’re doing. Take a deep breath and even close your eyes briefly

so you can be focused on the call. Be sure to answer the telephone no later

than the third ring; rental prospects generally have a list of calls they plan

to make, so they’re rarely patient. If you don’t answer in the first few rings,

they’ll begin dialing the next phone number on their list and probably won’t

take the time to call you again.

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Chapter 8: Handling Prospects When They Come A’Calling

Because positive first impressions are always very important, remember that

the goal of your initial contact is to project a friendly, helpful, and professional

image. These two pointers can help:

 Have a smile on your face and speak clearly. This is one phone tech-

nique that really does make a difference. Your positive attitude and

enthusiasm can make a very important first impression. Even if you’re

not in the best of spirits at the moment the phone rings, don’t sound

rushed or hurried. You don’t want your rental prospects to feel that

they’re imposing upon you.

If you sound disorganized and hesitant on the phone, the prospects will

likely feel that you’re incompetent and not the type of rental property

owner whom they can trust and count on if they have a problem or

need a repair. However, if you come across in your initial contact with

the rental prospects as polite, knowledgeable, organized, and confi-

dent, they’ll respect your skills as a rental management professional.

Prospects will see that you treat the rental of your property as a busi-

ness, not a casual hobby.

 Control your atmosphere to maintain a professional image. If you

run your rental management business from your home and your rental

prospect calls and hears children screaming in the background or other

distracting noises, you’ll be making a very unprofessional impression.

Controlling your environment can be especially challenging with the

advent of cellphones, which are great for improving your availability,

but often you may not be in a location where it’s conducive or safe (if

you’re driving) to take phone calls. In these situations, let the call go to

voice mail and call the prospect back at your earliest convenience.

As with any business, you may find that a rental inquiry call comes in when

you’re right in the middle of another situation that can’t wait. Or you may

think that if you’re not prepared, it may actually be better to let your voice

mail system or answering machine take a message. I suggest you still answer

the call right away and give your caller the choice to be placed on hold, or

let her know you can call her right back if she prefers. The majority of rental

prospects aren’t willing to leave a message, and you lose an opportunity to

speak with them personally as a result. Asking the caller if she can call back

in a few minutes is a very risky strategy and one that I don’t recommend,

because the odds of her calling back are remote. Remember that the majority

of calls made by rental prospects to small rental property owners require

leaving a phone message, and you can really stand out by answering your

calls personally.

If you’re fortunate enough to have an exciting and chaotic home life, then you

need to take steps to make sure your rental inquiry calls can be distinguished

from general household calls. For a nominal charge, many local phone service

providers offer a call waiting service that gives you two phone lines for one

phone number. You can also have two separate lines or a service with distinc-

tive ring tones so you can distinguish your personal calls from your rental

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business calls. If other members of your household pick up the phone during

your conversation, you can easily get distracted, so let the people in your

household know how to tell the difference between regular calls and

business calls.

Providing and obtaining the basic info

Rental inquiry calls are different from most of the calls you normally make in

business. I often find that both parties are simultaneously trying to eliminate

the other as a prospect and trying to get as much information without giving

out any information of their own. But this approach isn’t the best because

you’re trying to make a telephone presentation of your rental property.

Instead, you need to have a give-and-take approach whereby you share the

basic information that prospects need while making an initial assessment of

their qualifications.

The beginning of many rental inquiry phone calls follows a standard pattern.

Being aware of this pattern and knowing where your parts fit in can help

you successfully make a professional and positive impression in the first few

minutes. Here’s how to handle the start of a basic rental inquiry call:

1. Let the caller inquire about your rental unit and whether it’s still

available.

The caller also typically asks about the size of the unit and the rental

rate. Always answer his questions directly.

2. Greet the caller by name to develop a rapport.

People generally like to be called by their names. If the caller hasn’t

already volunteered this information, you may want to mention your

first name again and ask for his name. If he gives you his name, be sure

to ask his permission for you to call him by his first name. Often a pros-

pect provides his last name only. In this case, show respect by using an

appropriate title when you call him by his surname.

3. Ask the prospect for a return phone number.

If you have caller ID, verify that you have the best telephone number to

reach him.

After you get past the initial formalities, begin prompting the caller for the

information you both need. For example, you need to know when the rental

prospect is looking to move in, how many people (and the number, type,

and size of pets, if applicable) will be residing in the rental, and what he’s

comfortable with as a monthly rent.

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Chapter 8: Handling Prospects When They Come A’Calling

An easy way to remember the basic questions you need to ask are to remem-

ber the six w’s — who, what, where, when, why, and how (yes, I realize that’s

technically five w’s and one h, but you get the point). Remember to use your

notes and provide the prospect with immediate feedback so that he knows

you’re interested in his call and are really trying to determine whether your

rental unit meets his needs.

Following are some examples of questions you can use to help determine

your prospect’s requirements:

 When will you need to move in?

 How many bedrooms do you need?

 How many people will be living in the rental?

 What size rental are you looking for?

 What would you feel comfortable with as a monthly rent?

 How long do you intend to live at this property?

 How much parking space do you require?

 Where are you living now?

 What’s wrong, if anything, with your current rental property?

 Why are you looking to move at this time?

 Where do you work?

 What do you do for a living?

 What’s your gross monthly income?

 What types of pets do you have?

 When can you drive by the rental property?

 How can I reach you by phone?

This basic initial give-and-take of questions and answers quickly determines

whether the rental inquiry conversation is worth continuing. The prospect

is looking for the opportunity to eliminate your rental property if you don’t

have what he needs at the time that he needs it. Likewise, if it appears that

your rental property may be a good fit, you still need to explore whether the

rental prospect is qualified and meets your screening requirements.

Take notes on this Q & A so you can summarize each prospect’s needs and

wants during the initial phone conversation. Bring these notes to rental show-

ings so that you know what aspects of your rental property are of greatest

interest to each renter. Plus, people really appreciate the fact that you care

enough to write down what they’re looking for instead of just trying to sell

them what you have to offer.

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Selling the prospect on your property

A key element to success in selling a rental prospect on your rental prop-

erty is your ability to build rapport with the prospect on the phone. As you

answer her initial questions, take the opportunity to highlight some of the

desirable or unique aspects of your rental. For example, if the prospective

renter asks about the number and size of the bedrooms, you can reply, “The

house has four bedrooms, each with a separate closet. The master bedroom

is very large at 15 feet by 12 feet. Will this accommodate your needs?” Or

maybe you can say, “The backyard is completely fenced and is very large. Do

you have any pets?”

Your goal is to turn the features of your property into benefits for the pro-

spective tenant. You need to do this by painting a picture of the property

in her mind. For example, if your rental property has a swimming pool, you

can talk about how nice it is to come home at the end of the day and enjoy a

refreshing swim or a favorite beverage.

The entire goal of the rental inquiry call is to get the qualified prospect to see

your rental property. You can’t — and shouldn’t — sign a rental contract on

the phone!

As the rental property owner, you definitely want to tell your story about

what a great rental property you have. Then, when you’ve grabbed the pros-

pect’s interest and determined that your rental unit meets her needs, you

want to begin evaluating her qualifications in light of your requirements and

needs. If you fail to hook the prospect, you never get to the next step. Of

course, you want to be sure to prescreen the prospective tenant during this

initial phone call so that you invest your valuable time only with qualified

rental prospects.

Prequalifying the prospect over the phone

After you pass a prospective tenant’s basic needs requirements, begin asking

your own qualifying questions. You need to confirm when the prospect is

looking to move, the size of the rental he requires, and his financial quali-

fications. Both you and the rental prospect need this basic information,

and together you go through this ceremonial dance with the goal being to

advance to the next stage — the showing of the rental unit.

But how do you know what to ask or what to watch for when prequalifying

prospects? Read on for some guidance to help you find the best tenants for

your rental property.

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Chapter 8: Handling Prospects When They Come A’Calling

Holding a balanced conversation

Think of a rental inquiry call as a tennis match, with each side taking a turn

presenting questions and gathering the answers needed to make a decision.

Ultimately, both parties must agree that the rental unit may meet the needs

of the rental prospect, and the rental prospect may meet the owner’s estab-

lished tenant screening criteria. This is the first step toward achieving your

main objective of the call — getting a commitment from the prospect to make

an appointment to see your rental unit in person.

Using open-ended questions and a pleasant manner, obtain basic information

from the tenant to determine whether he meets your rental requirements.

You should also determine whether you’re speaking with the actual decision-

maker, or whether this prospect is really gathering information for someone

else. Although you always prefer to deal with the primary decision-maker

from the initial contact on, you need to be skillful in prequalifying all the

prospects without alienating your immediate contact, because the immediate

contact is likely to have considerable influence on the decision as well.

The answers to your basic questions determine whether you need to go on

to the next step. For example, if currently you have only a studio apartment

available, there may be no need to show this particular rental unit if the

prospect says six applicants are planning to live in it. However, some Fair

Housing advocates may claim you’re discriminating on the basis of familial

status or national origin if you don’t show a studio apartment to applicants

with six people proposed to live in the unit.

Your goal during the rental inquiry call is to give the caller enough informa-

tion about your rental property that he can determine whether he has enough

genuine interest in the property to make it worth his time to actually see it

in person. Likewise, you want to obtain enough information about the rental

prospect and his coapplicants to prequalify them for your rental property.

Matchmaking is a two-way street.

Naturally, not every rental property is a match for every rental prospect.

Your goal isn’t to convince all the callers that they must see your rental prop-

erty in person. Showing a rental unit to an uninterested or unqualified rental

prospect is one of the most frustrating experiences in a rental management

career. Showing property to qualified and interested prospects, however, is

one of the most important factors in successful time management for rental

property owners and managers.

Eyeing the qualities of desirable (and not-so-desirable) tenants

You can begin the process of prequalifying your rental prospect over the

phone instead of having to wait until you meet him when he tours the rental

property or completes a rental application. By chatting with a prospective

tenant during the very first phone call, you’re starting the all-important

screening process right then and there.

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Determining you’re on the phone with a qualified rental prospect is easy if you

know what to look for. Of course, you need to verify this information before

making a commitment to rent your property, but if you can say, “Yes” to each

of these statements, chances are you have a qualified prospect:

 You have a rental of the appropriate type and size available when the

prospect needs it.

 The prospect meets your minimum qualifying standards for income,

credit history, and employment history.

 The prospect has enough cash to pay the entire first month’s rent and

the full security deposit.

 At least one of the prospects is of legal age to sign the rental contract.

 The proposed number of occupants is appropriate for the particular

rental unit.

 The prospect has an acceptable rental history and is vacating current

living accommodations legally.

 The prospect is willing to live within your property guidelines, such as

no pets or no smoking allowed in the rental unit.

When trying to identify qualified prospects, you also want to watch out for

less desirable prospects who don’t meet your rental criteria. During the

rental inquiry call, make sure you’re not dealing with a professional tenant,

someone who jumps from rental to rental frequently. Even during your first

call, certain red flags may indicate you’re dealing with someone who’s trou-

ble. A potential sign is a rental prospect who asks very few questions about

the property and the area but is very interested in things like your move-in

special or whether you can lower the rent or allow the security deposit to be

paid over the first three months.

If a prospect seems interested in moving in too quickly, watch out. Although

you may think that finding someone who wants to move in right away is great

for cutting your rent loss, this eagerness may be an indication that the person

has something to hide or is just looking for his next landlord victim. Maybe

his current landlord just served him with eviction papers for nonpayment,

and he needs to leave before he’s physically removed. It can take up to two

or three months for eviction actions to become a matter of public record, so

your prospective tenant’s credit report may turn up clean initially even if he’s

had recent problems. Be wary of subtle hints of trouble as early as the first

phone call.

Handling phone objections

If you’ve done your homework, you’re well prepared and know the answers

to questions about the rental unit and the surrounding area. Being prepared

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Chapter 8: Handling Prospects When They Come A’Calling

for rental inquiries includes anticipating reasonable objections and provid-

ing honest answers to your prospect tenant. Your goal isn’t to convince the

unqualified prospect who truly isn’t a good match for your property to waste

everyone’s valuable time and come see the rental unit when it obviously

won’t work. Instead, your goal is to anticipate some of the more common

objections and have info ready that allows you and the prospect to deter-

mine whether the mutual interest is high enough to warrant going to the next

step — showing the unit.

I once managed a rental property with a centralized location, but it was also

right under the flight path of a major airport. The ideal location near major

employment and recreational centers made our property very desirable,

but the proximity to the airport was quite obvious, and it was well-known

that many rental properties in the area had significant problems with noise.

Logically, almost all our rental prospects who visited the property raised this

concern, but even many of the callers brought up the noise because they were

familiar with the area. What they didn’t know was that when the property was

built, the architects had designed the rental units with special double-pane

soundproof windows and extra insulation so that interior noise wasn’t a prob-

lem. Knowing the perception of rental properties in the area, we incorporated

the soundproofing features right up front in our phone rental presentation.

You may hear the complaint or concern that your older, 20-unit rental prop-

erty doesn’t have individual washers and dryers in every unit, as found in

competitive properties in your area. Instead, your property features a cen-

tralized laundry room with new washers and dryers and a large folding table

for tenants’ convenience. Anticipating that some prospects are looking for

individual washers and dryers and will raise an objection when you don’t

have this feature means you’re prepared. You know that the competitors

also have smaller units with less storage, because the washer/dryer takes up

important closet and storage space. You also know that your competitor’s

tenants have to pay for the water, whereas you pay for the water usage at

your property. These are important facts that you can politely mention to the

prospect over the phone. When showing the rental unit to a prospect, you

can provide her with the Comparison Chart covered earlier in this chapter.

Converting phone calls to rental showings

If your initial phone conversation goes well, the prospect will want to tour

your rental property. You’ve already invested a lot of time and energy into

the rental inquiry call, so this is the moment of truth when you find out

whether your prospect is really interested in your rental. Maybe he’s just

gathering information for a future move, or maybe he’s checking out similar

rental properties to determine if the rent increase he just received from his

current landlord is justified.

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You’ve answered a lot of questions, taken careful notes highlighting the

prospect’s needs and wants, and built up a rapport. You wouldn’t have

invested this much time in a prospect unless you felt that your rental met

his needs and that he was very likely to pass your tenant screening criteria.

So now isn’t the time to become passive and tell him to call you back if he’s

interested. Nor is it the time to sheepishly suggest, “Stop by the open house

this weekend, if you’re in the neighborhood.”

You need to be assertive and come right out and ask him to visit your rental

property so you can personally show him your rental unit. If the prospect

shows any signs of hesitating, you need to directly ask him if something’s

wrong. Your prospective tenant may then admit that he’s just filed bankruptcy

or that he plans to use your rental property for an iguana farm. Asking

questions is one of your best tools; be sure to do it.

The rental prospect may indicate that he’s interested in the rental property

based on your conversation, but he wants to drive by it before actually

making an appointment for a rental showing. This caveat is fine and can be

another useful tool in maximizing your efficiency as a rental property owner.

Two scenarios can happen if the prospect wants to do a drive-by before

scheduling a rental showing:

 He calls back and asks for an appointment, or asks for the time of your

next open house, and you can rest assured he’ll show up.

 He drives by the property and finds that it’s not suitable for him.

In both cases, allowing the prospect drive-by is a positive step. In the former

case, the prospect isn’t presold on the area and curb appeal of your rental

property alone; in the latter, the prospect doesn’t waste your time scheduling

a personal tour.

Many rental management advisors suggest you improve your efficiency by

allowing prospective tenants to tour your rental property on their own. These

advisors suggest giving prospects the combination to a lockbox at the rental

property or allowing them to drop by and pick up a key. These advisors usu-

ally recommend that you ask for a $25 cash deposit or that you hold a pros-

pect’s driver’s license as an incentive to return the key. Be extremely careful

in this kind of situation, because you may find that a prospective tenant has

stripped the appliances or severely damaged the property while inside. Or

worse, a prospect may decide your rental property’s perfect and just move

right in!

Many prospects make a rental showing appointment only to drive by the

property a few minutes before the actual appointment and then skip the

appointment if they don’t like what they see. Another common scenario is

one in which the prospect has already decided that your rental isn’t going

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Chapter 8: Handling Prospects When They Come A’Calling

to be his next home, no matter how great the interior and how competitively

you price the rental. But he feels guilty and doesn’t want to skip out on you,

so he shows up for the appointment and goes through the motions of looking

at everything for close to an hour. Just imagine how many hours are wasted

because your prospect may have taken the opportunity to gauge the neigh-

borhood and curb appeal of the rental property before meeting for a sched-

uled rental showing.

Planning Ahead for Open Houses

and Walk-Throughs

One of the most time-consuming aspects of owning and managing rental

property is the time spent filling vacancies. And the biggest time trap for

most owners who don’t have a system already in place is the rental showing.

If you were to schedule a separate appointment with every interested rental

prospect, you’d be making trips back and forth to the property constantly.

Unless you live or work very close to your rental property, you can quickly

find that you’re spending hours showing the rental to one prospect after

another. That’s why having a strategy for showing your rental — whether you

plan to have an open house or set up individual appointments — is the best

way to go. The next few sections can help you formulate that strategy.

Holding an open house

Because your time is valuable and you have many qualified prospects inter-

ested in seeing your rental property, you may want to consider holding an

open house. An open house allows you to efficiently show the rental property

to several interested rental prospects within a couple of hours. A successful

landlord doesn’t make a dozen trips to show property to a dozen different

rental prospects. Open houses are also beneficial because having multiple

prospects viewing the property can create a sense of urgency and competi-

tion, which often generates multiple applicants for your rental property.

One of the other benefits to holding an open house is that many rental

prospects feel more comfortable touring a rental property with other pros-

pects around. These folks may be concerned about meeting someone they

don’t know in a vacant rental property. And you, too, should be very con-

cerned about your own personal safety for the same reasons. Holding an

open house can eliminate, or at least reduce, any safety concerns you —

and your prospects — may have.

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Select a time for your open house that’s convenient for you and most work-

ing people (preferably during daylight hours). For example, an open house on

Saturday from 11 a.m. to 2 p.m. usually gives rental prospects a good oppor-

tunity to see your rental property at a convenient time for them, while saving

you from having to make multiple trips. In the summer months, a weekday

afternoon from 4 p.m. to 7 p.m. may be a good option. Combining a weekday

afternoon open house with one on the weekend can also be very effective.

That way, virtually all prospects can fit the rental showing into their busy

schedules.

An open house promoted strictly in a newspaper ad isn’t a good idea, because

you may end up with many unqualified renters walking through your prop-

erty. But an open house where you invite all qualified prospects whom you’ve

spoken with in response to your ad is a good way to efficiently lease your

rental and create that sense of urgency and competition among prospective

tenants.

Scheduling individual appointments

If you’re in a depressed rental market or find that you need to fill a vacancy

during the holidays, you may not be able to generate enough interest from

Creating a sense of urgency

When you ask your prospect to come out and

see your rental property, you may get a non-

committal response or an excuse that she can’t

make it no matter how many different appoint-

ment times you offer over the next week. Of

course, the most popular excuse you can

expect to hear is that she’s just begun calling,

and your rental ad is the first one she called

on. This statement may be true, so you need

to be polite and patient. But if you’re truly her

first call, then it’s likely she called you first for

a reason — your advertising made your rental

sound like her best option. So patience can be a

virtue, as long as you’re not too patient.

Be honest, but don’t hesitate to let the prospect

know you already have or will soon be receiv-

ing many more rental inquiry calls. Let her know

that it’s your intent to sign a rental contract with

the most qualified rental prospect but that you

also process the rental applications in the order

in which they’re received. So if you have two or

more qualified applicants, you may lean toward

the first qualified rental prospect who submitted

an application. This knowledge creates a sense

of urgency for the caller.

If you anticipate receiving interest in your rental

property from multiple callers, set up one or

two open houses so you can show the rental

property to several interested prospects in just

a couple of hours instead of making multiple

trips. In tight rental markets, this method often

creates a competitive or even auction-like envi-

ronment, in which one prospect doesn’t want to

lose out to another. There’s nothing like a little

competition to instill a call to action in potential

renters!

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Chapter 8: Handling Prospects When They Come A’Calling

prospects to schedule an open house for multiple renters. In this case, you

need to be prepared to show your rental unit in the evenings and on week-

ends, because that’s often when prospects are available. Of course, you can

still try to consolidate your appointments to a certain time frame, but don’t

push this scheduling too far. Asking prospects to conform to your calendar

may turn them off.

If you have to schedule individual appointments to show your property, be

sure you have the phone numbers for your prospects. Almost everyone has a

cellphone these days, so call each person to verify the rental showing before

making a special trip to the property. By calling, you’re also reassuring the

prospect that you’ll be there and won’t be delayed.

Crime is a concern in virtually all parts of the U.S. Making an appointment

to show a stranger your rental property can be an opportunity for someone

criminally inclined. Be alert and take reasonable steps to protect yourself. If

you ever have an uneasy feeling about a prospective tenant, decline the rental

showing rather than risk personal injury. Limit your rental showings to day-

light hours and bring someone with you, if at all possible. If you’d prefer, tell

your rental prospect to meet you outside, right in front of the property or at

another public location, and require a picture ID before showing the unit. You

can then use your cellphone to call a family member or friend and tell that

person the name and driver’s license number of your rental prospect. If you

want, have someone call you on your cellphone to check in throughout the

showing. Of course, if you ever feel uncomfortable, be polite yet firm, end

the rental tour, and leave immediately. Don’t ever put yourself in a dangerous

situation!

Providing directions to the property

When you have a commitment from the rental prospect to come to the prop-

erty for an open house or rental showing, make sure you can provide clear

and easy-to-follow directions from anywhere in your area. Many Internet sites

can provide your prospect with personalized directions from her location to

your rental property. Because many of your prospects likely have Internet

access, the need to provide directions to your property may not seem to

be a priority.

However, giving directions may not be quite as simple and unimportant as

you may think. Often the online directions don’t offer the most scenic or

time-efficient path to your rental property. You always want to offer your

own directions, or at least suggest a route that approaches your rental

property from a certain direction.

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Carefully consider the best route for your rental prospect. Take into con-

sideration the traffic conditions she faces at the time of the open house or

appointment. Think about which route presents the neighborhood in the

best light. You want the route to be direct, but don’t hesitate to have the

prospective tenant come in from a different direction if doing so provides her

with important information, such as the great shopping, schools, or other

benefits of the area near your rental property.

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Chapter 9

Strutting Your Property’s Stuff:

Making Your Property Stick Out

In This Chapter

 Making a good first impression on prospective tenants

 Signing up high-quality tenants for your rental property

 Knowing how to give tenants the scoop on the environment and safety of your property

o successfully rent your property, you need to show prospective rent-

ers why yours is better than all the others on the market. After you take

the steps to prepare your property (see Chapter 5) and market it (check

out Chapter 7), it’s time to let prospective renters see what you have — and

entice them to sign on the dotted line in the process.

In this chapter, I cover the proper way to show a rental unit, handle objec-

tions (which are really a sign of interest by your prospective tenants), and

close the deal. I also make sure you’re aware of important governmentally

required disclosures that all rental property owners or managers must share

with their tenants.

Showing Your Rental Unit

When your rental prospects arrive, you want to make a good first impres-

sion before you even open the door to your rental unit. Be sure to greet

your prospects with a smile and introduce yourself. Ask for their names and

shake their hands. Refer to the notes you made on the telephone prospect

card during your initial phone conversation to let them know you remember

speaking with them (flip back to Chapter 8 for tips on how to conduct this

conversation). This thoughtfulness gives prospective tenants a good feeling

that you’re not just going through the standard rental spiel.

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Listen to any questions or concerns that may have come up since you

spoke on the phone. Ask your prospective tenants whether they found your

directions accurate and easy to use. Also, ask whether they have any other

needs that they’re looking for in a rental property that haven’t already been

discussed.

Don’t just let your prospects wander through the rental unit by themselves.

(Of course, this general rule is particularly true if you’re showing an occupied

rental unit.) Listen carefully to your prospects and anyone accompanying

them as you informally guide the party through the rental unit. Pay close

attention to the features your prospective tenants indicate are of particular

interest or any comments they make during the walk-through. But be careful

not to come across as too pushy or overselling because this behavior turns

off a lot of qualified prospects who dislike pressure-selling techniques. For

more information on preparing your rental for walk-throughs, see Chapter 5.

No matter whether you’re showing a vacant rental or an occupied rental, the

next two sections focus on what you need to do to get your property rented.

Showing a vacant rental

If you’re showing a vacant rental, act more like a tour consultant than a tour

guide during the unit tour. Don’t be too controlling; instead, let the prospects

view the rental in the manner that suits them. Some prospects go right to a

certain room, which gives you a clue about the importance they place on that

aspect of the property. Of course, if the prospects hesitate or are reluctant to

tour on their own, you can casually guide them through the rental property

yourself.

There are as many different ways to show a rental unit as there are rental

property owners. Remember the information provided by each prospect

and customize the tour by beginning with the feature or room you feel has

the most interest for him. Don’t head straight to your favorite feature. When

in doubt, start with the kitchen, then transition to the living areas and the

bedrooms.

Keep the following pointers in mind when showing a vacant rental:

 Encourage your rental prospects to see the entire rental property.

Don’t overlook any garage or storage areas and the exterior grounds

or yard, if applicable. You want to be sure prospective tenants have

an opportunity to observe the conditions of all portions of the rental

property and ask any questions. Doing so minimizes future claims that

you discriminated against a prospect by selectively showing your rental

property.

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Chapter 9: Strutting Your Property’s Stuff: Making Your Property Stick Out

 Listen and observe the body language and facial expressions of your

prospects while they walk through the property. When you begin

showing the interior of your rental, avoid making obvious statements

such as, “This is the living room” or, “Here’s the bathroom!” You don’t

need to oversell if your prospective tenants seem pleased, but you

should feel free to point out the benefits of your rental property. (Take

in prospects’ reactions and comments; then chime in with something

along the lines of, “It sounds like this neutral-colored carpet will go great

with your living room furniture” or, “The view of the sunsets from the

kitchen is so relaxing.”)

 Have a tape measure with you. Vacant rental units look smaller than

occupied ones, so a tape measure can assist your prospects in imme-

diately determining that their bedroom set will fit in the master suite.

If your prospects express concerns that their furniture won’t fit in your

rental, consider this strategy: Set up a partially or fully furnished model

rental unit to demonstrate what furniture will fit inside. Although this

tactic may not be feasible for most single-family home or condominium

rental units, it can work quite well for medium to larger apartment prop-

erties that regularly have vacant units or have a market for furnished

rentals. Smaller rental properties can use a vignette, which is a rental

unit that has been decorated with towels, books, and knickknacks to

give the unit personality. Sometimes you can even close the sale by

offering to give new renters these small items.

If you’re holding an open house, you can quickly find yourself dealing with

multiple prospects who all seem to have better timing than a synchronized

swimming team. Do your best to courteously greet and speak with each pros-

pect individually. At the very least, cover the basic information and get the

first prospects started on the property tour before beginning to work with

the next prospects. Be sure to communicate clearly that you’ll answer all

questions and treat all prospects openly and fairly to avoid any allegations of

favoritism or discrimination.

Showing an occupied rental

If you’re showing an occupied rental unit, be sure to consider the inherent

advantages and disadvantages. On the plus side, your current tenant can be

a real asset if she’s friendly and cooperative and takes care of the property,

because prospective tenants may want to ask her questions about her living

experience at your property. But not all tenants take the same level of care

with your rental property or want to help you re-rent it when they’re getting

ready to move.

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Always keep these tips in mind when showing an occupied rental unit:

 Consider your current tenant’s attitude. If she’s being evicted, isn’t

leaving on good terms, or has an antagonistic attitude for any reason,

don’t show the rental unit until the property is vacated. Your tenant’s

cooperation will be required, but you may be able to complete your

rent-ready preparation work and any rental unit upgrades at this time as

well. This strategy also works if your current tenant hasn’t taken good

care of your property’s grounds or landscaping, or if her furnishings

may be objectionable to some prospective tenants.

 Know your local laws regarding showing occupied units. In most

states, if the tenant is at the end of her lease or has given a notice to

vacate, the rental property owner is specifically allowed to enter the

rental property in order to show the unit to a prospective tenant. Of

course, you must comply with state laws, which require you to give your

current tenant advance written notice of entry prior to showing the

unit. She may agree to waive the notice requirement, but make sure you

have this agreement in writing.

 Work with your tenant to coordinate scheduling. Do your best to

cooperate with the current tenant when scheduling mutually convenient

times to show the rental. Be sure to respect her privacy and avoid

excessive intrusions into her life. To ensure the cooperation of your

tenant, you may even want to offer her a small bonus after she vacates,

as a part of her security deposit disposition.

 Try to get copies of recent utility bills from your current tenant.

Having current bills on hand is helpful if your prospective renters have

any questions about utility costs. Prices for electricity, natural gas,

water and sewer, and trash service are becoming significant items in the

budgets of many renters. You don’t want your new tenant to be finan-

cially unable to handle the typical monthly utility costs of your unit,

because this difficulty may impact her ability to pay your rent. If your

rental property has “green” or energy-efficient features or appliances,

you may be able to use low utility costs as a marketing tool.

Although the current tenant may legally be required to allow you and your

prospects to enter the rental unit for a showing, she doesn’t have to make any

effort to ensure the property is clean and neat. Nor is she required to help you

in your efforts to impress the prospect. Keep this fact in mind when deciding

whether you want to show your rental unit while it’s still occupied.

Taking the First Steps to Get

the Renter Interested

Although some rental units may rent themselves, the reality is your success

as a property manager may be directly enhanced if you become skilled in

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Chapter 9: Strutting Your Property’s Stuff: Making Your Property Stick Out

properly presenting the best features of your rental unit. You should use the

meeting with your prospective tenant to evaluate whether the rental unit will

be a good fit for the tenant.

This section walks you through the steps of prequalifying your tenant,

handling objections, and closing the sale with a completed rental application.

I also cover the advantages of priority waiting lists and holding deposits.

Prequalifying your prospect

during the rental showing

While you’re touring the rental, prequalify the prospective tenant for your

unit by verifying the information he provided during your initial phone con-

versation. Refer to your notes and confirm his desired move-in date and

employment, the number of occupants, the rental rate, and other important

information. Also, make sure the prospective tenant is aware of your rental

policies and any limitations on pets or other important issues.

You don’t want to be abrupt or refuse to let the rental applicant begin looking

at the property until he answers numerous questions. However, verifying the

basics upfront can save a lot of time if there’s a misunderstanding or if the

prospect’s needs have changed.

If you don’t take the time to review the information a prospect provided to

you on the phone, as well as your rental terms and expectations, you may find

some the prospect glossed over certain problems or indicated your rental

policies were just fine when really they weren’t. Of course, this individual’s

strategy is to wait until you think you’ve successfully rented the unit and are

just about to sign on the proverbial dotted line when he springs the truth on

you. Maybe his dying aunt has suddenly asked him to care for her 200-pound

Doberman or his paycheck was delayed and he can only pay your security

deposit in installments. You don’t need these surprises, so confirm all the

basics sooner rather than later!

Resolving your prospect’s objections

Almost every rental prospect expresses some concerns or reservations about

some physical aspects of the rental property, the area, your rental rate, or

other terms. No rental property exactly meets the needs of each prospective

tenant, so don’t be caught off guard when you inevitably run into objections.

Objections come in many forms. Some are a test to see whether you’ll lower

the rent or make some improvements to the rental property. Others are

sincere issues that are generally more tangible and specific in nature.

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If you’ve been listening carefully to the prospect and taking notes, then you

can anticipate and handle some objections before she even brings them

up. In many instances, objections can actually present an opportunity to

reassure your prospect that your rental property meets her needs.

If the prospect raises a question and you don’t know the answer, make a note

and promise to get back to her as soon as possible. Avoid the temptation to

give an immediate answer that may not be right. Why? Because some rental

prospects ask questions they already know the answers to just to test your

sincerity. Most objections can be overcome if you discuss them openly with

the prospective tenant and provide honest feedback. Giving the prospect a

response and attempting to answer positively is important.

Convincing your prospect

After you qualify the prospect, you need to convince him that you have the

best rental unit available. Renters want more than just a place to live. They

want to feel they can communicate with you if a problem arises. They also

appreciate when someone shows an interest in their lives. And by showing an

interest, you’re clearly setting yourself apart from other property managers.

I believe prospects accept rental units that aren’t exactly what they’re look-

ing for if they have positive feelings about the rental property owners or

managers.

I realized how important the property manager can be to renters when I

transferred a popular manager from one property to another very early in

my property management career. Ginny had been our on-site manager at a

300-unit rental property for nearly five years before we gave her a promotion

to a 400-unit rental community a few miles away. I was shocked when more

than 50 of Ginny’s current residents decided to give notice and move with her

to the larger property (despite the higher rents and hotter summers at that

location).

I’ve never seen a rental unit that can rent itself; you need to make the

difference. No matter how closely your rental unit meets the stated needs

and wants of your prospects, they often hesitate and doubt their own judg-

ment. You don’t need to be pushy, but you should be prepared to actively

convince prospective tenants that your rental property is right for them.

The best way to avoid problem tenants who pay late, damage your property,

or disrupt the neighbors is not to rent to them in the first place. Screening

your next tenant begins with the very first phone call. Tell the prospect you’ll

run his credit report and call his references. Don’t waste your time convincing

prospects who don’t seem to fit your criteria for a high-quality tenant.

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Chapter 9: Strutting Your Property’s Stuff: Making Your Property Stick Out

Inviting your prospect to sign on

When you’ve convinced your prospect that your unit is the right one for

her, it’s time to close the sale. This is one area where many rental property

owners and managers suddenly get cold feet. They can do a great job

handling the initial telephone inquiry, preparing and showing the rental

property, and even resolving objections, but when it comes down to asking

the prospect to commit — they become shy and freeze.

Your goal is to receive a rental commitment from the prospect by having her

complete your rental application and pay any pre-move-in screening fee, her

first month’s rent, and a full security deposit on the spot. Of course, you still

need to thoroughly screen the prospect and confirm she meets your rental

criteria before asking her to sign a rental contract.

If despite your best efforts, the prospect is still undecided, make sure she

gives you a holding deposit. Remind her that you may make a deal with the

very next prospect, and she’ll be out of luck. Of course, if you have a lot

of demand for your rental units, you should develop a priority waiting list,

which is covered later in this chapter.

Having your prospect complete

a rental application

You need to offer every interested prospect the opportunity to complete a

written rental application for two important reasons:

 You want to have all the information so you can begin the screening

process and select the best tenant for your rental property by using

objective criteria and your rental requirements. The rental application

is the key document you use to verify information and conduct your

entire tenant screening procedure. I cover tenant screening in more

detail in Chapter 10.

 You want to avoid having prospects accuse you of discriminating

against them by not permitting them to fill out the rental application.

Don’t prejudge an applicant. The prospect may have already volunteered

enough information about his financial situation and tenant history that

you believe it would be a waste of time and effort for him to complete

an application. Even in such a situation, always be sure to offer your

rental application to every rental prospect of legal contracting age.

Figure 9-1 shows you the first page of a standard rental application. Check out

the accompanying CD for a full Rental Application you can use.

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Par t II: Renting Your Proper ty

Figure 9-1:

Rental

Application.

Have several rental applications and pens available at the property. Although

you want to make sure you offer an application to every prospect, you don’t

just want to hand them out and let the prospects leave without making

commitments.

Here are some important guidelines to remember when having prospects

complete rental applications:

 Every prospective tenant who is currently 18 years of age or older

should completely fill out a written application. This rule applies

whether the applicants are married, are related in some other way, or

are unrelated roommates.

 Before accepting the rental application, carefully review the entire

form to make sure each prospect has clearly and legibly provided

all requested information. Pay particular attention to all names and

addresses, employment information, Social Security numbers, driver’s

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Chapter 9: Strutting Your Property’s Stuff: Making Your Property Stick Out

license numbers, and emergency contacts. Any blanks should be marked

with an “N/A” if not applicable so that you can tell those items weren’t

inadvertently overlooked.

 Each prospective tenant must sign the rental application authorizing

you to perform your pre-move-in screening, verify the provided infor-

mation, and run a credit report. You can’t legally obtain and review a

consumer credit report without an applicant’s permission.

 All prospective tenants need to show you a current driver’s license

or other similar photo identification so that you can confirm that

they’re providing you with their correct names and current addresses.

Identity theft is a growing concern; make sure you know exactly who

you’re renting to.

You may be asked by the prospect — or you may decide on your own — to

go over the rental application with him and assist him in providing the infor-

mation. If you do so, be very careful to ask only questions that are part of

the rental application. Avoid asking questions that may directly or indirectly

discriminate. Don’t ask the rental applicant about his birthplace, religion,

marital status, children, or a physical or mental condition. You can ask him if

he has ever been convicted of a crime and whether he is at least 18-years-old.

Holding your prospect’s deposit

Some rental prospects are willing to make firm commitments, but they either

won’t or can’t give you the full security deposits and first month’s rent.

Maybe they just don’t have the funds at the time, or maybe they want to

reserve your rental while looking for a better property. In these situations,

you may want to ask for a holding deposit to allow you to take the rental unit

off the market for a limited period of time while you obtain a credit report or

verify other information on the rental application.

Don’t allow the prospective tenant to reserve your rental property with a

small holding deposit for more than a couple of days. Two days gives you

more than enough time to screen the prospect; any additional time the rental

unit is off the market often translates into rent you never see. After you

approve the rental prospect, try to have her sign the rental contract. If the

prospect still insists she needs additional time, have her agree to pay the daily

rental rate or refund her holding deposit and continue your search for more

interested prospects.

By taking the rental unit off the market, you’re forgoing the ability to rent it

to someone else. If the prospective tenant fails to rent your property for any

reason, you’ve potentially lost revenue while the unit has been vacant and

reserved. On the other hand, rental prospects don’t want to pay rent while

you’re running them through your tenant screening process. The solution is

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Par t II: Renting Your Proper ty

to use a written Holding Deposit Agreement and receipt, like the one shown

in Figure 9-2 (also available on the CD), which outlines the understanding

between you and the prospective tenant.

Figure 9-2:

Holding

Deposit

Agreement.

Holding Deposit Agreement and Receipt

On the date below, _______________________________________ (Owner) received $ ________________ from

____________________________________ (Applicant) as a Holding Deposit for the premises located at:

_____________________________________________ (Rental unit) on the terms and conditions set forth herein.

1. Rent of $ __________ per month shall be payable in advance on the first of each month. The tenancy will

begin on the _____ day of _______________, 20____, but subject to any present tenant vacating or the

unavailability of the rental unit.

2. Of the total funds hereby received by Owner, the sum of $ ________ is an Application Fee that the

Applicant understands and agrees is nonrefundable. The Application Fee represents the estimated costs

incurred by the Owner in obtaining and verifying the credit information, employment and references of the

Applicant and similar tenant screening functions.

3. Of the total funds hereby received by Owner, the sum of $ ________ represents a Holding Deposit.

4. The Applicant has paid the Application Fee and Holding Deposit to the Owner in the form of cash,

cashier's check, money order or personal check. Owner is free to deposit all funds received herein and

shall maintain this Holding Deposit in liquid funds subject to review by Owner or its agents of the

Applicant's rental application.

5. Applicant shall be entitled to a full refund of the Holding Deposit within ________ days if the Owner

determines that:

a) The Owner does not approve the Applicant's rental application; and/or

b) The premises are not available on the agreed date

6. Upon notification by the Owner to the Applicant that their rental application has been accepted, the

Applicant agrees to execute all lease or rental agreement and related documents and pay any balance still

due for the first month's rent and full security deposit. Applicant understands that once their rental

application has been approved, the rental unit is being taken off the rental market and reserved for the

Applicant and any or all other potential Applicants will be turned away.

7. If after acceptance of the Applicant's rental application, the Applicant fails to comply, the Owner may

immediately deduct from the amount received the sum of $ _______ per day (daily rate) for each day the

rental unit is vacant from the date the Applicant's tenancy was to begin through the date the rental unit is

rerented to another tenant, but not in any event to exceed 30 days. It is agreed that the daily rate is

calculated as an amount equal to 1/30

of the above monthly rental rate. In addition, the Owner shall be

entitled to retain reasonable administrative fees and advertising expenses associated with remarketing the

rental unit. The Applicant agrees that the daily rate plus the actual incurred administrative expenses and

advertising costs are reasonable and liquidated damages since the actual damages would be difficult or

impossible to ascertain.

8. The Owner, within ______ days after the rental unit is rerented, shall return to Applicant, to the Applicant's

address shown below, any remaining balance of the Holding Deposit and shall include an itemization of the

Owner's damages.

9. If any legal action or proceeding is brought by either party to enforce any part of this agreement, the

prevailing party shall recover, in addition to all other relief, reasonable attorneys fees and costs. By

signing below, both the Owner and Applicant acknowledge and accept all terms contained herein.

________________________________ _________________________________

Applicant's Signature Applicant's Signature

________________________________ _________________________________

Applicant's Name (print) Applicant's Name (print)

________________________________ _________________________________

Applicant's Address Applicant's Address

________________________________ _________________________________

Date Owner/Agent

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Chapter 9: Strutting Your Property’s Stuff: Making Your Property Stick Out

If you use a holding deposit, you must have a written agreement or else

you’re very likely to encounter a misunderstanding or even legal action. State

laws regarding holding deposits vary, yet they’re almost uniformly vague and

can easily lead to disputes.

Developing priority waiting lists

If you have several qualified rental prospects interested in your rental unit,

you’ll only be able to rent to one of them. Use the tenant selection criteria

covered in Chapter 10 to select the most-qualified prospect.

If you have other qualified prospective tenants, you may have other rental

units at the same property, or in close proximity, that would interest them.

If those other units aren’t available right at the moment, you may be able to

offer your prospects a spot on your priority waiting list, which is just a way

for you to keep track of qualified tenants for whom you simply don’t yet have

available rentals instead of turning them away. Being in this situation is a

dream come true for many rental property owners or managers.

If potential tenants express a desire to rent your property at a future date,

and you know other rentals are available in the area, the prospects may

be interested because your rents are lower than market value. (Otherwise,

they’d simply find another comparable rental somewhere else instead of

waiting.) If you have a long waiting list, make sure it’s because your rental

property is desirable — not because you’re charging too little in rent.

Some prospective tenants are simply looking for a great rental property sev-

eral months in advance. Although you can’t hold your rental property vacant

and off the market until these folks are ready to rent, you can lock them in

for one of your rental units that may be coming available at the time they’re

prepared to move. This situation is especially typical for prospects relocating

from out of town and making a trip to look for a rental a few weeks or months

before they officially move. You may be able to pre-rent your rental units

even before they become vacant (and that’s a great position for any property

manager to be in).

When you create a priority waiting list, don’t just write the prospective ten-

ants’ names on a piece of paper, because this approach gives you no commit-

ment, and the chances of those prospects returning to rent from you are slim.

Prospective tenants’ levels of commitment increase if you prequalify them,

take partially refundable deposits, and give them written confirmations that

they’re on your priority waiting list. You may even want to offer to lock in a

rental rate if they rent from you within a certain number of months.

Inform your prospective tenants they’re on the waiting list. Also, if you own

multiple rental units, be sure to let your prospects know you can’t guarantee

that a certain property or rental unit will be available when they’re ready to

move in, because you can’t control when your current tenants will vacate.

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Give prospective tenants the right to cancel and let them know that the

portion of their deposits not used for the tenant screening process are fully

refundable at any time.

As with all rental policies, you need to apply your priority waiting list policy

uniformly to all prospects. So if you have a priority waiting list, be sure to let

all prospective tenants know about it and don’t restrict anyone from being

added to the list. Otherwise, you can be accused of discrimination.

Handling Mandatory Disclosures

and Environmental Issues

One of the major challenges to being a successful rental property owner is

keeping abreast of the constantly evolving health and safety requirements in

your state that affect rental properties. In addition to providing your tenants

with a clean and habitable rental property, you need to take precautions to

ensure the rental is a safe and healthy environment.

Although failing to meet required state and federal disclosures leads to defi-

nite legal implications and substantial liability, most rental property owners

genuinely don’t want to see their tenants get sick or injured. In the following

sections, I cover some of the most common issues facing rental property

owners today.

New federal, state, and local legislation is constantly under consideration,

and rental property owners must stay current with all requirements or face

serious consequences. Check the CD for links to state landlord-tenant laws to

find out about any state disclosure requirements.

Lead-based paint

As a rental property owner, you need to be aware of the dangers of lead

and the federally required disclosures regarding it. More than 40 states now

have lead hazard reduction laws in place, some of which require testing and

careful maintenance, in addition to the federal disclosure requirements.

Although lead-based paint isn’t a hazard when in good condition, it can be a

serious problem (particularly for young children) when it cracks, peels, or

turns to chalk due to age. Lead has been banned from paint since 1978, but

even to this day, older rental housing units may contain paint manufactured

before that time. You can’t tell whether paint contains lead just by looking at

it; a special lead test is the only way to verify the existence of lead.

Lead-based paint isn’t easy to remove. If your rental property has lead-

based paint, hire a licensed contractor to address concerns about lead.

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Chapter 9: Strutting Your Property’s Stuff: Making Your Property Stick Out

Unfortunately, removing lead can be quite expensive. Often the best solution

is to manage the lead in place rather than completely remove it, because

the removal processes of sanding and scraping can release large amounts of

lead dust.

If you have any concerns about lead hazards, review the extensive resources

available from the Environmental Protection Agency (EPA) and the National

Lead Information Center (NLIC) by visiting www.epa.gov/lead or by calling

800-424-LEAD (800-424-5323).

Most rental property owners use a Lead-Based Paint Disclosure Form (see

Figure 9-3) to ensure they have complied with the Residential Lead-Based

Paint Hazard Reduction Act of 1992 (see the nearby sidebar for more info).

Pull this form from the CD, print it online at www.epa.gov/lead/pubs/

lesr_eng.pdf, or contact the NLIC at 800-424-5323 for a copy.

The Residential Lead-Based Paint Hazard Reduction Act also requires

you to provide tenants with an information pamphlet by the EPA entitled

“Protect Your Family From Lead In Your Home.” You can get this pamphlet

online at www.epa.gov/lead/pubs/leadpdfe.pdf in both English and

Spanish. You can receive clarification on the law from the NLIC by calling

800-424-5323. California and Massachusetts are currently the only states with

their own pamphlets on lead-based paint hazards that the EPA has autho-

rized for distribution in lieu of the EPA pamphlet.

Whichever pamphlet you provide your tenants, be sure you comply with the

federal law and keep a copy of the disclosure form signed and dated by the

tenants. This written record of compliance with the disclosure requirements

must be kept on hand and readily available for review in case of an investiga-

tion or audit for a minimum of three years. Remember that you only need to

make the required disclosure once, even if a tenant renews an existing lease.

Rental property owners or managers who fail to follow the federal regulations

for lead-based paint can face significant fines. To enforce these regulations,

the federal Housing and Urban Development (HUD) agency and the EPA are

working together to investigate complaints from prospective tenants and/or

current tenants who believe they may have been exposed to lead-based paint.

If a tenant doesn’t receive the required EPA or approved state information

pamphlet or the disclosure statement, the owner or property manager may be

subject to

 A notice of noncompliance

 A civil penalty of up to $11,000 per violation for willful and continuing

noncompliance

 An order to pay the injured tenant up to three times his or her actual

damages

 A criminal fine of up to $11,000 per violation

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Figure 9-3:

As a

property

owner,

you’re

required

by law to

give a lead-

based paint

disclosure

form like

this one to

any tenants

or prospects

if your prop-

erty was

built before

January 1,

1978.

Courtesy of U.S. Environmental Protection Agency

Recently, the EPA and HUD began aggressively enforcing these regulations

and levied significant and well-publicized fines against rental property owners

and managers who haven’t complied with the law. Government testers have

been known to pose as prospective tenants, and federal agents have scoured

leasing and maintenance records looking for evidence that property owners or

managers knew or should have known about the existence of lead-based paint

hazards on their property. This is not an area where you want to tempt fate.

Make sure you comply with this law and keep the required documentation on

file in an easily retrievable location for at least three years.

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Chapter 9: Strutting Your Property’s Stuff: Making Your Property Stick Out

Asbestos

Asbestos has received a lot of media coverage over the last 20 years. You

may remember the federal government’s concerns about asbestos in schools

and the major efforts to remove asbestos-containing materials from those

facilities. Currently, federal rules only require you to investigate or remove

asbestos in rental housing when you’re doing renovations that may disturb

the asbestos, or when you demolish any portion of the housing. Check with

your local and state officials for any disclosure requirements they may

require. Some jurisdictions insist asbestos materials be disclosed to tenants,

along with a warning not to disturb them.

Asbestos is a mineral fiber that historically was added to a variety of products

to strengthen them and provide heat insulation and fire resistance. In most

products, asbestos is blended with a binding material so that as long as it

Painting a clearer picture of lead-based paints

The federal Residential Lead-Based Paint

Hazard Reduction Act of 1992 covers all dwell-

ings built before 1978 and requires rental hous-

ing owners or their property managers to notify

tenants that the rental property may have lead-

based paint. Testing for lead-based paint or

removal isn’t currently required under federal

law. However, you must disclose any known

presence of lead-based paint or hazards and

provide all tenants with copies of any available

records or reports pertaining to the presence of

lead-based paint and/or hazards.

In addition to all housing constructed after

January 1, 1978, some limited rental property

exemptions from federal lead-based paint dis-

closure regulations do exist. Exempt properties

include the following:

 Housing for the elderly or persons with

disabilities (unless children under the age

of 6 are living there)

 Short-term rentals of 100 days or less

 Certain university housing, such as

dormitory housing or rentals in sorority or

fraternity houses

 Zero bedroom units, such as studios, lofts,

or efficiencies

 Housing that has been inspected and cer-

tified as “lead-free” by a state-accredited

lead inspector

Be sure to contact the EPA or your state

health and environmental agency for specific

information. If you’re advised that your prop-

erty is exempt, be sure to receive written veri-

fication before ceasing to follow the federal

requirements.

In pre-1978 properties, lead is usually found on:

 Doors, door jambs and frames, railings, and

banisters

 Exterior painted surfaces

 Interior trim

 Windowsills and horizontal painted

surfaces

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remains intact, fibers aren’t released into the air, and no health risk occurs.

Asbestos fibers are microscopic and can be positively identified only with a

special type of microscope.

The concern in most rental properties is that asbestos-containing materials

may be disturbed, causing them to release microscopic fibers, which can

be inhaled into the lungs. For example, many older apartments have popcorn

or acoustic ceilings containing asbestos, which can be disturbed by installing

a ceiling light or fan. The asbestos fibers don’t self-destruct but remain in

the air for a long time, increasing the risk of disease. Some asbestos materials

are friable, meaning they crumble into small particles or fibers. Asbestos-

containing materials can also crumble easily if mishandled. Even if the

asbestos-containing material was originally intact, asbestos can be released

into the air if the material is sawed, scraped, sanded into a powder, or sub-

jected to some mechanical processes.

A common cause of the release of asbestos in rental housing is inappropri-

ate or unsafe handling of asbestos-containing materials during remodeling

or renovation of the property. If you plan to do any renovations that may

disturb asbestos or plan to demolish your building, federal law requires a

comprehensive survey before the work begins. Any asbestos found during

the survey must then be handled appropriately. To be valid, the survey must

be conducted by trained asbestos personnel.

Products containing asbestos aren’t usually labeled. Asbestos was commonly

used until 1981. Now, it’s estimated that more than 3,000 products still in use

today contain asbestos. These products, which can be found in many rental

properties, include acoustic ceilings, vinyl flooring and tile backings, floor-

ing mastic (a type of adhesive), building insulation, wall and ceiling panels,

carpet padding, roofing materials, pipe and duct insulation, patching and

spackling compounds, and furnaces. Do not assume that a property built or

remodeled after 1981 doesn’t contain asbestos products.

According to the American Lung Association, if you have asbestos-containing

substances in your rental property, do the following:

 If the substance is in good condition and the asbestos won’t be dis-

turbed, leave it alone. Be sure to warn the tenants not to disturb these

materials and have them notify you immediately if these materials are

damaged in any way.

 If the material is damaged and can release fibers in the air, you

should have it repaired or removed. Always seek the advice of a profes-

sional environmental firm to evaluate and recommend the best course of

action concerning asbestos.

• Repair usually involves either sealing or covering asbestos mate-

rial. Sealing is also commonly referred to as encapsulation and

involves coating materials so that the asbestos can’t be released.

Encapsulation is only effective for undamaged asbestos-containing

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Chapter 9: Strutting Your Property’s Stuff: Making Your Property Stick Out

material. If materials are soft, crumbly, or otherwise damaged,

sealing isn’t appropriate, and the substances should be removed

by a qualified professional.

• Removing asbestos-containing materials is an expensive and

hazardous process to be completed only by trained personnel

using special tools and techniques, and should be a last resort.

A licensed contractor who specializes in removing asbestos-

containing materials should be used, because improper removal

can very easily increase the health risks to the workers, yourself,

and your future tenants. Also, unauthorized removal of asbestos

can be illegal. Punishment can include hundreds of thousands of

dollars in fines or prison.

Asbestos is a very dangerous material if disturbed or in poor condition. Don’t

attempt to test for asbestos on your own. Hire a professional environmental

testing firm, because the act of breaking open potentially asbestos-containing

material to obtain test samples may release asbestos into the air and create a

very dangerous situation.

Radon

Radon, a radioactive gas, is a known cancer-causing agent that the EPA cites

as the second leading cause of lung cancer in the United States and claims

20,000 lives annually. Found in soil and rock in all parts of the U.S., radon

is formed as a byproduct of the natural decay of the radioactive materi-

als radium and uranium. Radon gas is invisible; it has no odor or taste. Its

presence in the interior of buildings has been found to cause lung cancer.

However, most radon found in buildings poses no direct threat to human

life, because the range of concentration is generally below the minimum

safe level.

Although currently no federal requirements exist regarding disclosure or

even testing for radon gas, it’s a potentially serious health issue and one

that’s receiving more attention. Be aware of radon levels in your rental units

and check with local authorities for more information about the prevalence

and appropriate precautions that should be taken to avoid radon exposure.

(Florida and New Jersey have been particularly aggressive in addressing the

radon problem.) Be sure to check with your local authorities for any specific

disclosure requirements.

Although radon may be found in all types of homes and buildings throughout

the U.S., it’s more likely to occur in the lower levels of tightly-sealed, energy-

efficient buildings where insulation limits the flow of air from the inside to the

outside and ventilation is poor.

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Testing for radon

The only way to know whether your rental property has radon at unhealthy

levels is to conduct short-term and/or long-term radon testing. Fortunately,

radon tests are inexpensive and easy to use. The quickest way to test for

radon is with a short-term test, which remains in your home anywhere from

2 to 90 days, depending on the device. Long-term tests remain in your home

for more than 90 days. Because radon levels tend to vary from day to day and

season to season, a long-term test is more likely to tell you your home’s year-

round average radon level than a short-term test.

You have two choices when testing for radon:

 Do it yourself. The do-it-yourself radon test kits are available in

hardware stores, and some laboratories provide kits through mail

order. Make sure you get one that meets EPA standards or your state’s

requirements — the test kit usually says so on the package. The price

of a simple short-term radon test kit starts at about $10 (or about $20 for

a long-term kit) and includes the cost of having a laboratory analyze the

test. Discounted radon test kits are available from the National Safety

Council by calling 800-767-7236.

 Hire a professional. For information on the detection and removal

of radon, you can contact the EPA National Radon Hotline by calling

800-767-7236 or by visiting the EPA Web site at www.epa.gov/radon.

This Web site has contacts for state agencies that regulate radon, plus

information on finding a qualified radon reduction provider.

The lowdown on asbestos

The federal Occupational Safety and Health

Administration (OSHA) has developed regula-

tions that apply to any building constructed

prior to 1981. These pre-1981 buildings are

presumed to have asbestos unless the owner

tests the property and verifies that asbestos or

asbestos-containing materials aren’t present.

Exposure to asbestos can lead to an increased

risk of lung cancer; mesothelioma, a cancer of

the lining of the chest and the abdominal cavity;

and asbestosis, a condition in which the lungs

become scarred with fibrous tissue.

No known safe exposure level to asbestos

exists. However, when the asbestos is intact

and can’t become airborne, exposure to it isn’t

a problem. Smokers who inhale exposed asbes-

tos fibers have a greater risk of developing lung

cancer than nonsmokers. Although most people

who get asbestosis have usually been exposed

to high levels of asbestos for a long time, even a

short but significant exposure can cause harm.

The symptoms of asbestos-related diseases

don’t usually appear until about 20 to 30 years

after the first exposure to asbestos.

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If your tests reveal radon in one particular unit of an apartment building,

have all the other units tested immediately and notify all other tenants in the

building of the problem promptly. Remember that even if your radon test

shows low radon levels in one unit, there may be high levels in other parts of

the building.

Repairing a radon problem

Fixing a radon problem usually involves repairs to the building. Therefore,

you as the building owner, not your tenant, are responsible for having this

work done. If your rental property has high radon levels, you can take steps

to see that the problem is fixed by installing equipment, such as fans, blow-

ers, and ducts, to reduce radon gas levels. The EPA advises that radon reduc-

tion costs between $800 and $2,500 for a single-family home with an average

cost of $1,200. For a larger rental property, the costs depend on the size and

other characteristics of the building.

Radon reduction work generally requires a trained professional. To find out

which radon reduction system is right for a building and how much those

repairs will cost, consult a professional radon contractor. The EPA and many

states have programs set up to train or certify radon professionals. Look

online for your state radon office, because it can provide a list of individuals

who have completed state or federal programs. It can also provide a list of

EPA-approved radon mitigators, or reduction specialists, in your state.

Sexual offenders

Virtually every state has a version of Megan’s Law, legislation which requires

certain convicted sexual offenders to register with local law enforcement.

The local law enforcement then maintains a database on the whereabouts of

the registered sex offenders, and it often makes this information available to

the public.

Megan’s Law is named after 7-year-old Megan Nicole Kanka of Hamilton

Township, New Jersey, who was raped and murdered in the summer of 1994

by a convicted child molester who was living in her neighborhood without

her parents’ knowledge. Less than 90 days after Megan’s abduction, New

Jersey passed Megan’s Law, which required making information about the

presence of convicted sex offenders in local neighborhoods available to

the public.

In 1996, a federal version of this crime prevention law was passed, requir-

ing the Federal Bureau of Investigation (FBI) to keep a national database of

all persons convicted of sexual offenses against minors and violent sexual

offenses against anyone. Prison officials are required to inform convicted

sex offenders of their legal obligation to register with state law enforcement

authorities. The state agencies are required to inform local law enforcement

and the FBI as to the registered addresses for each convicted sex offender.

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Local law enforcement authorities are then permitted to release the collected

information as necessary to protect the public, but active community

notification isn’t mandatory.

Unfortunately, states aren’t very consistent in their efforts to maintain and

make this database available. The federal law allows each state to decide

how to use and distribute the database information. The three options are:

 Widespread notification with easy access: This option allows notifica-

tion to the public, including methods such as posting the names and

addresses on the Internet or on a CD-ROM.

 Selective notification with limited access: This alternative allows

notification only to those groups most at risk, such as schools and

daycare centers.

 Restricted notification with narrow access: This option allows access

only for a particular name or address.

Although registration is mandatory, often the addresses provided aren’t

verified, or the convicted sex offender may move and fail to reregister at his

new address. Also, the accuracy of this database can vary widely based on

the age of the information.

Some states require property owners or managers to provide a disclosure

statement to each tenant advising her of the availability of the Megan’s Law

database. Whether you’re required by state law to give your tenant a Megan’s

Law disclosure, if you’re ever asked by a prospective renter about Megan’s

Law, be sure to refer her to local law enforcement authorities and make a

written and dated note of the conversation for your files. For specific infor-

mation on the requirements of Megan’s Law in your state, call your local law

enforcement agency, contact the Parents for Megan’s Law (PFML) hotline at

888-ASK-PFML (888-275-7365), or check www.parentsformeganslaw.com.

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Chapter 10

Eenie, Meenie, Miney, Mo:

Selecting Your Tenants

In This Chapter

 Recognizing the value of proper tenant screening and written criteria for your process

 Confirming your applicants’ information

 Informing applicants of the outcome

 Knowing the laws surrounding Fair Housing

hen you own rental property, one of your most important tasks is

screening and selecting tenants. Because the process of screening

tenants is time-consuming, you need to have a system in place for doing it

efficiently. Here I help you navigate these unfamiliar waters with ease.

Basically, with tenant selection and screening, you develop and use objec-

tive, written tenant selection criteria, consistently screen all rental applicants

against these minimum criteria, and select the most qualified tenant based

on your review.

With a system, tenant screening really isn’t that difficult; it just requires

assertiveness, diligence, and patience. Even after you’ve been managing

your rental properties for many years, you still won’t be able to just look at

a rental application and know whether the applicant is qualified. You have

to check the prospect’s references, credit history, employment, income

sources or assets, job stability, and tenant history. And you can’t cut corners.

Selecting a bad tenant is much worse than having a vacant rental unit. So

choose your tenants wisely and profit in the long run.

Another critical part of choosing your tenants is making sure you handle the

selection process without bias, abiding by all Fair Housing regulations. This

concept can be a murky issue, but it’s an important one you need to pay

attention to no matter what your situation so that you’re not slapped with a

discrimination lawsuit.

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Understanding the Importance

of Screening

If you’re like many rental property owners, you may be thinking, “Screening?

Isn’t that just a waste of time? After all, I trust my gut instinct when I meet

people. I know which ones are good and which are just trouble.” Although

it does take time to verify all the information on your prospective tenant’s

rental application, it’s time well spent. Relying on your instincts is very inac-

curate, arbitrary, and, above all, illegal.

In order to increase your chances of finding a long-term, stable tenant and

avoid charges of discrimination, your tenant selection criteria and screening

process should be clear, systematic, and objective. Put this process in

writing to ensure it’s applied consistently and fairly to all rental applicants.

Establishing solid tenant selection criteria and performing a thorough tenant

screening process doesn’t guarantee a good tenant, but it does significantly

improve your odds of finding one.

Setting up a systematic screening process is particularly critical if you only

own a single rental or a small, multi-unit rental property. Professional tenants

(people who go from property to property damaging the units or not paying

rent) are experienced and shrewd. They know that the large, professionally

managed rental properties have detailed and thorough screening procedures

that attempt to verify every single item on their rental applications. If certain

items don’t check out, the professional property manager doesn’t just trust

her feelings on the prospective tenant. Professional tenants know that small

rental property owners are easier targets, because the novice property owner

is more likely to bend the rules than the professional.

Sometimes the mere mention of the tenant screening process is enough to

make the rental prospect fidget and shift into the classic “I’m just looking”

mode. Don’t rush a prospect or allow one to hurry you through the tenant

screening and selection process. The wrong decision can be financially dev-

astating, particularly if you have just a couple of rental units with monthly

debt payments.

Establishing Tenant Selection Criteria

Tenant selection criteria are written standards that you use to evaluate

each prospect’s qualifications as a tenant. Determine your exact minimum

qualifications and adhere to them. Of course, your written criteria can’t be

discriminatory or violate any federal, state, or local Fair Housing laws.

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Chapter 10: Eenie, Meenie, Miney, Mo: Selecting Your Tenants

These criteria can help you treat all rental applicants fairly to avoid claims

of discrimination. Making the effort to develop written guidelines can also

be useful as an objective evaluation technique to minimize the chance that

you may be swayed by a charming prospect and find yourself lowering your

standards and allowing a not-so-desirable tenant to occupy your valuable

rental property.

The following sections break down the importance of tenant selection criteria

and how you can develop your own.

Why having criteria is important

Giving all prospective tenants an overview of your rental screening proce-

dure and requirements upfront lets them know exactly what you’re looking

for in a qualified rental applicant. Because these criteria are the minimum

standards you accept, prospective tenants thus know why their rental

application may be rejected.

Developing your own tenant selection criteria has several benefits:

 Rental applicants know you’re aware of and comply with all Fair

Housing laws. You want to make sure your tenants know they’ll be eval-

uated objectively and fairly and that you promote equal opportunities

in housing.

 Rental applicants understand that rental activity and the preparation

for it are dynamic processes. Certain units may or may not be available

even within the same day for legitimate business reasons. Outlining this

policy and maintaining good records can minimize accusations of dis-

crimination.

 Rental applicants are aware that you abide by the reasonable occu-

pancy limits suggested by most federal and state standards, while

being conscious of the unit’s limitations. With the high cost of hous-

ing in many areas, some tenants are looking to occupy a smaller rental

unit; you need to make sure that your property can handle the intended

number of occupants while complying with standards.

 Rental applicants know what to expect from your process of evaluat-

ing rental applications. They know that all applications are thoroughly

verified, that the process takes one or two days, and that you charge an

application fee to cover some of your costs for the screening process.

 Rental applicants realize that everyone applying for your unit is evalu-

ated consistently and fairly. They can review your requirements and

evaluate their own qualifications to see whether applying is even worth

their time.

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More than 90 percent of your rental applicants are going to be good tenants

who pay their rent on time, take good care of their homes, and treat you and

their neighbors with respect. You just need to carefully guard against those

few bad apples, so don’t hesitate to deny prospects who can’t meet your

standards.

How to create your criteria

In order to establish your tenant selection criteria, review what you’re look-

ing for in a tenant. Your notion of the ideal tenant may be different from

someone else’s, but here are five important traits to look for:

 Someone who’ll be financially responsible and always pay his rent

on time.

 Someone who’ll respect and treat the property as if it were her own.

 Someone who’ll be a good neighbor and not cause problems.

 Someone who’ll be stable and likely to renew his lease.

 Someone who’ll leave the premises in a condition the same as or better

than she found it.

In order to have the best results in selecting your tenants and ensure your

rental prospects understand your tenant selection criteria, develop a

Statement of Rental Policy, which is a formal, written statement explaining your

screening criteria.

The accompanying CD has a sample Statement of Rental Policy that you

can develop for your rental property and provide to each and every rental

applicant over the age of 18. Your policy standards may be more or less

stringent depending on your rental market and experience. But no matter

what, you need to be sure that your standards comply with all state and

local laws. I strongly advise that you have a local attorney who specializes in

landlord-tenant law review your Statement of Rental Policy in advance.

Your Statement of Rental Policy should be given to each and every applicant

with the rental application. If you have a multi-unit rental property with an

office, clearly post the policy where all applicants can see it. If you don’t have

an office, insert the policy in an acrylic or similar holder, and place it in clear

view on the rental unit’s kitchen counter or another area where all prospects

can see it as they walk through.

You aren’t required to provide your rental prospects with copies of your

written tenant selection criteria. Although you must offer all prospects rental

applications and process each one received, you can benefit when prospects

make their own decisions not to apply for your rental based on the criteria

you’ve set up. The key is to follow these criteria without exception and have

the information available if you’re challenged.

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Chapter 10: Eenie, Meenie, Miney, Mo: Selecting Your Tenants

Some rental property owners feel more comfortable discussing the tenant

selection criteria right from the first rental inquiry call (which I cover in

Chapter 8), whereas others wait and distribute copies only to those individu-

als who actually apply. You need to decide which policy works best for you

and then apply it consistently.

Always be very thorough when you perform tenant screening and use the

same process with all rental applicants. You run the risk of being charged with

illegal discrimination if you deviate from your written standards for certain

applicants. Many legally acceptable reasons to deny a rental application exist,

but be sure that your requirements are clearly understood and followed just

to be safe.

The fact that you carefully prescreen all prospects is a positive factor not

only for you but also for your rental applicants, your current tenants, and

your neighbors. In fact, you have a responsibility to your current tenants

to weed out the unqualified prospects with a track record of disrupting the

neighbors everywhere they go. Good rental prospects appreciate the fact

that their neighbors had to meet your high standards, too.

Verifying Rental Applications

Bad tenants don’t walk around with the word deadbeat printed on their fore-

heads. The tenant screening process requires you to be a detective, and all

good detectives verify each fact and take thorough notes. You want to ensure

that the rental prospect meets your minimum standards as outlined in your

Statement of Rental Policy (see the preceding section).

I recommend that you use a Rental Application Verification Form, like the

one available on the CD, to collect and review the necessary information that

allows you to properly evaluate your rental applicant’s qualifications. The fol-

lowing sections explain what info from the rental application you need to con-

firm before allowing a tenant to move in.

Keep copies of all rental applications, the corresponding Rental Application

Verification Forms, credit reports, and all other documentation for both

accepted and rejected applicants for at least four years. That way if anyone

ever claims you discriminated against him or her, your best defense will be

your own records, which clearly indicate that you had legal rental criteria, and

you applied them consistently.

Confirming identity

The very first step you should take in verifying a rental application is to

personally meet each prospective adult tenant. Require each prospective

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adult tenant to show you a current government-issued photo ID so that

you can confirm each applicant is providing you with the correct name

and current address. Advise your rental applicant that if his application is

approved, you’ll need a photocopy of his ID to be kept in his tenant file. Initial

the rental application to record that you did indeed verify this information.

Inquire about any discrepancies between the application and the ID pro-

vided. Even if the explanation seems reasonable, be sure to write down the

new information. Maybe an old address appears on the photo ID, which you

can check out further through a credit reporting agency.

Having a photocopy of the ID for each adult tenant can be very important

if a dispute concerning the tenant’s identity arises in the future. In these

situations, you need to be able to clearly show that you positively identified

the tenant upon move-in.

Going over occupancy guidelines

Take a look at the rental application information provided by the tenant

concerning the number of persons planning to occupy your rental property

to ensure that the anticipated use is within your established occupancy

guidelines.

One of a property manager’s major concerns is excessive wear and tear

of the rental unit. Clearly, the greater the number of occupants in a rental

unit, the greater the possibility for wear and tear. Unfortunately, questions

about occupancy have no simple answers, and the laws and regulations

concerning occupancy standards aren’t universally accepted. For example,

the Department of Housing and Urban Development (HUD) guidelines

state that property managers can limit occupancy to two individuals per

bedroom. However, state and local restrictions must be followed as well. And

in California, for example, the Department of Fair Employment and Housing

has formulated the 2 + 1 occupancy standard guideline, which states that a

property manager must allow two individuals per bedroom, plus an addi-

tional occupant for the unit. In other words, three individuals may occupy

a one-bedroom rental unit, and five individuals a two-bedroom rental unit,

and so on.

Contact your local or state housing agency for information on its occupancy

regulations. You must always apply the most generous occupancy standard.

In addition to occupancy standards, you also have to consider maximum

occupancy limits. These restrictions are usually set by state and local health

and safety boards, or building codes based on the square footage or size of

the rental unit and its number of bedrooms and bathrooms. The maximum

occupancy permitted under these code sections is often as high as seven

persons in a one-bedroom rental unit. The occupancy of your rental unit

should stay closer to the minimum rather than the maximum.

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Chapter 10: Eenie, Meenie, Miney, Mo: Selecting Your Tenants

Unless you have a more generous state or local requirement, I recommend

using the 2 + 1 minimum occupancy guideline. Although federal and most state

and local occupancy standards allow a more restrictive policy, the burden of

proof is on the rental property owner. If you feel you have a legitimate basis,

meaning a supportable, nondiscriminatory business reason, for having a more

restrictive occupancy standard, hire a consultant and have him or her make

an independent evaluation and recommendation.

Some rental property owners illegally use the occupancy standard as a subtle

tool to limit the number of rental applicants with children. HUD and state and

local Fair Housing agencies receive a large volume of calls concerning familial

status discrimination. In some areas, these complaints outnumber claims on

the basis of all other protected classes combined.

Investigating rental history

You also want to confirm the applicant’s rental history. To do so, contact her

current landlord and go through the questions on the rental history portion

of the Rental Application Verification Form. When you first contact the prior

landlord, you may want to listen to his initial reaction and let him tell you

about the applicant. Some landlords welcome the opportunity to tell you all

about your rental applicant, so listen carefully.

Some rental applicants may provide you with letters of reference from their

prior landlords, or even copies of their credit reports. This behavior often

occurs in many competitive rental markets where only the prepared tenants

have a chance to get a quality rental property. Although the more informa-

tion you have, the better the decision you can usually make, be very careful

to evaluate the authenticity of any documents provided by your prospects.

Accept these papers but always perform your complete tenant screening

process to independently verify all information.

Current or prior landlords may not be entirely forthcoming with answers

to many of your questions. Most likely, they’re concerned that they’ll have

some liability if they provide any negative or subjective information. If the

information you receive on your applicant from the current landlord is

primarily negative, you may not need to check with any other prior land-

lords. However, be wary that the current landlord may not be entirely

honest; he may be upset with the tenant for leaving his property, or he may

not say anything bad about a problem tenant so that he can get the tenant

out of his property and into yours.

When a current or prior landlord isn’t overly cooperative, try to gain his

confidence by providing him with some information about yourself and your

rental property. If you’re still unable to build rapport, try to get him to at

least answer the most important question of all: “Would you rent to this appli-

cant again?” He can simply give you a “yes” or a “no” without any details. Of

course, silence can also tell you everything you need to know.

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Another useful screening tool is to request that each prospective tenant pro-

vide copies of his or her water and utility bills for the past year. Doing so veri-

fies prior addresses and gives you an idea whether the applicant pays bills on

time. (A rental prospect who can’t pay utility bills in a timely manner is very

likely to have trouble paying your rent.) You may also want to inquire with

local law enforcement to see whether its records show any complaints at a

tenant’s prior address.

Validating employment and income

Although credit reporting agencies may provide information on your rental

applicant’s employment or other sources of income, they typically don’t have

all the information you need to properly evaluate this extremely important

rental qualification criterion.

Independently verify the information and phone number the applicant puts

on her application if you have any doubts about their authenticity. You may

have reason for concern if an employer is a major corporation, and the tele-

phone isn’t answered in a typical and customary business manner, for exam-

ple. You also need to be careful that you confirm the sensitive compensation

and stability of employment questions only with an appropriate employer

representative.

Occasionally, you may find that an employer doesn’t verify any information

over the phone. So be prepared to send letters requesting the pertinent infor-

mation, and include a self-addressed, stamped envelope. Be sure to tell your

rental prospect that you may have a delay in providing him with the results of

your tenant screening process.

Your rental applicant should provide you with proof of his employment or

other sources of income. This proof may be in the form of recent pay stubs,

bank account statements, and other proof of income or assets. No matter

how strong the information is, verify it directly with the employer or the

other source of income.

Always require written verification of all sources of income that a rental

applicant is using to meet your income qualification requirements. If you can’t

verify the income, you don’t have to include it in your calculations to deter-

mine whether the applicant meets your minimum income requirements. Keep

the following points in mind as you verify income:

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Chapter 10: Eenie, Meenie, Miney, Mo: Selecting Your Tenants

 When you have a rental applicant who relies on sales, commission

income, or bonuses, make sure you review at least six consecutive

months of pay stubs. Of course, the best policy is to require all appli-

cants with any income other than salary to provide copies of their

signed tax returns for the last two years. Although you must be careful

to determine that it’s an authentic document, I have yet to find a rental

prospect who overstates annual income on a tax return.

 Pay close attention to applicants who seem to actually be overquali-

fied or anxious to be approved and take possession of your rental

unit. Remember the old saying, “If it sounds too good to be true, it

probably is.” This adage definitely applies in the world of rental prop-

erty, so keep it in mind at all times.

 Be particularly careful of rental applicants who seem to have plenty of

cash to pay your security deposit and first month’s rent, but who don’t

have verifiable sources of income that seem consistent with their

spending patterns. The applicant may be involved in illegal activity,

and you may need to evict him later at considerable expense and loss

of income. Rental property owners can even lose their properties under

certain circumstances if they fail to take action to eliminate the source

of illegal activity on their property.

Several states and local jurisdictions have laws prohibiting a rental property

owner from denying an applicant because he receives public assistance.

California has gone further to include source of income as a state protected

class, which means you can’t have a requirement that the applicant must

be employed, but simply that he has legal and verifiable income or financial

resources to meet your stated requirements.

If you’re in an area where source of income is a protected class, you may find

you’re violating Fair Housing laws if you have policies that favor employees

of certain companies, or you favor specific types of employment — some

property owners offer discounts to teachers, police, firefighters, and similar

occupations. Traditionally, the source of income protection was to guard

against discrimination of individuals who receive governmental assistance,

but it’s been expanded to include limitations on landlords who want to offer

favorable terms to certain individuals based on their employment.

Reviewing credit history

You can and should check out an applicant’s credit history by obtaining a

credit report. This document shows all current and previous credit cards and

loans with rating information on the timeliness of payments when due, plus

all public record entries such as bankruptcy and judgment. Through a credit

report, you can figure out whether an applicant has been late or delinquent

in paying her rent or other living expenses.

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What to look for in a credit history

Following is a list of what to consider when reviewing a credit history:

 A pattern of financial responsibility: You want your prospective tenant

to have a history of prudent or conservative spending. Avoid rental

applicants who seem to be using excessive credit and are living beyond

their means. If they move into your rental property and experience even

a temporary loss of income due to illness or a job situation, you may be

the one with an unexpected income loss as a result!

 An accurate address: You want to be able to verify prior living situa-

tions, so carefully compare the addresses contained on the credit report

to the information provided on the rental application. If you spot an

inconsistency, ask the rental prospect for an explanation. Maybe she

was temporarily staying with a family member or simply forgot about

one of her residences. Of course, be sure to contact prior landlords and

ask all the questions on the Rental Application Verification Form just to

make sure the applicant didn’t neglect to tell you about that residence

for a reason.

If it looks too good to be true, it probably is!

I once managed a large rental property in a

major city. I regularly visited the property and

performed an inspection of both the physi-

cal aspects and the rental office procedures.

One area of ongoing examination was the new

rental application, which I reviewed to ensure

it was being properly completed by each pros-

pect and that the tenant screening process was

being applied uniformly.

During one of my visits, I reviewed a rental

application for a one-bedroom apartment that

was in the process of being screened. The

on-site manager spoke very highly of this

younger person who had just graduated from

high school, was looking for his first apart-

ment, and listed an income of $750 per week.

The manager then told me how, with more than

$3,000 per month in income, this applicant was

financially qualified.

Having been in rental management for many

years, I was curious about the weekly income,

so I took a look at the rental application and

noticed that the individual listed the local sports

facility as his employer. Sure enough, upon sub-

sequent inquiry of the employer and then the

prospect, it became apparent that the applicant

did indeed earn $750 per week. The problem

was that he earned this amount only during the

six months of the professional baseball season

and only in the two weeks per month that the

local team played games in town. This situation

is a reminder of the importance of thoroughly

inquiring into and verifying all claimed income

or assets.

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Chapter 10: Eenie, Meenie, Miney, Mo: Selecting Your Tenants

 A false Social Security number: You want to make sure you’re review-

ing the credit report of your actual applicant. People with poor credit

or tenant histories have been known to steal the identity of others,

particularly their own children, by using someone else’s Social Security

number. One way to prevent this problem is to make sure your credit

reporting service provides a Social Security number search. (Check out

the nearby sidebar for more info.)

Information obtained in credit reports must be kept strictly confidential and

can’t be given to any third parties. In some states, the rental applicant is enti-

tled to a copy of his or her credit report upon request, and federal law allows

anyone denied credit on the basis of a credit report to obtain a free copy of it.

Where to get your applicant’s credit history

A credit report contains valuable information that can assist you in deter-

mining whether your rental applicant meets your resident selection criteria.

However, the federal Fair Credit Reporting Act (FCRA) has very complicated

restrictions on the proper use of this sensitive information that can be used

improperly. In order to get a consumer credit history, you need to contact

a tenant screening service in your area. You can find many companies that

work specifically with the rental housing industry by going through your

local National Apartment Association (NAA) affiliate or your local Institute of

Real Estate Management (IREM) chapter.

The info you’ll receive from the tenant screening service is based on the

databases and records of the three dominant consumer reporting agencies

(CRAs), which are

 Equifax: www.equifax.com

 Experian: www.experian.com

 TransUnion: www.transunion.com

With the wide choice of tenant screening services available, you may have

a hard time deciding exactly what you need. I recommend you use a service

that offers the following:

 A retail or consumer credit report

 An eviction search or tenant history

 An automated cross-check of addresses

 A Social Security number or Individual Taxpayer Identification Number

 An employment or income and prior landlord reference verification

 A criminal records search

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The Internet is quickly changing the tenant screening procedures for many

rental property owners. Consumer credit reports, tenant history, and

criminal records search services are now available from your computer in

a matter of seconds. This instant access often allows you to approve your

rental applicant in minutes or hours, which can be a strong competitive

advantage.

Many tenant screening firms are entering this electronic market locally and

nationally, and all offer very impressive services designed to save you time

and help you fill your vacancies faster. Using technology can improve the effi-

ciency of your information collection for tenant screening and provide you

with more details to make a better decision. However, don’t rely strictly on

computers and forget to personally contact past landlords, verify the appli-

cant’s income and employment, or consider your own dealings with your

prospective tenant. Rental property ownership and management is still, and

always will be, a people business.

What charges are involved

The cost of a tenant screening credit report varies widely. On an individual

basis, tenant screening can run between $30 and $50. When you start adding

Asking for a Social Security number or not?

Problem: Some rental property owners or man-

agers require applicants to provide a Social

Security number (SSN). However, such a policy

may risk a Fair Housing complaint, because only

U.S. citizens or immigrants authorized to work

in the United States can obtain an SSN. Many

people (like those with student visas) simply

don’t qualify for one. Also, with the increased

concern about identity theft and privacy rights,

some of your rental prospects who do have an

SSN may not feel comfortable providing it on

your rental application.

Solution: An alternative to the standard SSN

can be an Individual Taxpayer Identification

Number (ITIN), which is issued upon request by

the IRS to anyone earning income while living

in the U.S. Credit reporting bureaus can use the

ITIN the same way they use the SSN to provide

you with information on your applicant’s credit

history.

Problem: Another concern with the SSN is that

some credit reporting bureaus have been pro-

viding rental owners and property managers

with eviction information that may be inaccu-

rate or misleading. The credit bureaus’ data-

bases often include information about every

eviction filed against an applicant, regardless

of whether the matter was ultimately resolved

in the tenant’s favor. Being confronted with an

erroneous eviction filing can be very discon-

certing for falsely accused rental applicants.

Solution: If your applicant has an eviction

filing on her credit report, you need to inquire

further and see whether it was filed in error,

dismissed, or resolved in her favor. In the mean-

time, know that most credit reporting bureaus

are making efforts to ensure their individual

databases reflect actual court judgments and

not just filings.

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Chapter 10: Eenie, Meenie, Miney, Mo: Selecting Your Tenants

an investigative or criminal records search in multiple areas, this expense

can go much higher. Establish the specific level of screening services you

want and then be consistent to avoid discrimination claims.

If you join a tenant screening service, you can get discounts of 50 percent

or more on each credit report. Some companies offer memberships with min-

imum monthly fees. But only owners of multiple rental properties who run at

least one tenant screening per month really benefit from membership. If you

run fewer than a dozen tenant screenings annually, you’ll usually find

it cheaper to just pay a higher fee per report.

If you own just a few rental units, you may find that joining your local apart-

ment association is a better deal than paying $30 to $50 per tenant screening.

Not only do you have easy access to reasonably priced tenant screening

services and consumer credit reports through your local apartment associa-

tion but as a member you can take advantage of its education, publications,

and forms. (The accompanying CD contains a complete list of all NAA affiliates

and info on their educational programs and designations.)

Charging an applicant for tenant screening or a consumer credit report if you

don’t actually run one is illegal. If you receive a large number of rental appli-

cations, review them in the order they’re received, one at a time. If the first

applicant fails to qualify, begin processing the next application. Check your

state laws to make sure you don’t exceed any legal maximum charges and be

sure to return any unused credit check fees to those individuals for whom you

don’t run the credit check. Try to keep your tenant screening fees as low as

possible and set them based on the fees paid to a tenant screening company,

the value of your time or salary expended, and any indirect expenses (like

phone calls) for checking rental history. Of course, always be aware of your

state or local laws regarding tenant charges.

Checking criminal history

Rental property owners’ liability is increasing all the time. One area of par-

ticular concern is criminal acts committed by tenants. In most states, rental

property owners have no legal duty to ask about or investigate the criminal

backgrounds of applicants or current tenants.

Since the events of September 11, 2001, federal, state, and local law enforce-

ment have made great efforts to standardize reporting of criminal activity.

However, in many areas of the country, only a county-level criminal records

search is possible. Additionally, many states only indicate felony convic-

tion records and don’t list convictions for misdemeanors involving violence,

sexual misconduct, or dishonesty.

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When reviewing a rental applicant’s criminal history, you need to consider

convictions only and not simply arrests. Because the U.S. legal system is

based on the idea that someone is innocent until proven guilty, only those

applicants who have criminal convictions should be denied. However, it’s not

really that simple. The federal Fair Housing Amendments Act considers past

drug addiction a disability, and prior drug-use felony convictions alone may

not be sufficient grounds to deny an applicant. (Fortunately, current drug use

or the sale, manufacturing, or distribution of illegal substances isn’t protected

under Fair Housing laws.) Some states also limit the ability to deny housing to

registered sex offenders. Always seek legal advice if you have any questions

about the findings of a criminal records search.

With many tenants moving from area to area, performing a thorough criminal

records search in every location the applicant may have lived can be cost

prohibitive. Many rental property owners only request a criminal records

search if the rental applicant indicates that he’s been convicted of (or pled

guilty or no contest to) a felony or a misdemeanor involving violence, sexual

misconduct, or dishonesty. Be diligent in looking for any indications that may

provide a clue to possible criminal activity, such as gaps in rental history

while the prospect was incarcerated.

What’s in a name?

I’ve served as an expert witness in many inter-

esting litigation matters concerning real estate.

One of my more memorable assignments was to

consult with the Legal Aid Society of Alameda

County, based in Oakland, California. It had

received complaints from several people who

claimed they were being repeatedly denied

rental housing even though they had excellent

jobs and perfect credit.

After a brief investigation, it became obvious

that the problem was a particular Bay Area

tenant screening service that wasn’t accu-

rately identifying rental applicants. When a

rental applicant with a fairly common name

was run through its database, the company

provided the rental property owner with nega-

tive information on evictions and poor credit

patterns. Unfortunately, because its information

wasn’t carefully screened and verified, the data

wasn’t applicable to the actual rental applicant.

Some very responsible and qualified applicants

were turned down simply because they had the

same name as an individual with a very poor

credit report.

The lesson? Always verify an applicant’s name,

Social Security number or Individual Taxpayer

Identification Number, and several former

addresses to ensure you’re using the correct

information in your screening efforts. Compare

the Social Security card (if available) with

information showing the approximate date and

general geographic location of its issuance.

You know you have a problem if your applicant

is over the age of 40 and was born and raised

along the East coast, yet the credit report-

ing agency indicates that the Social Security

card was originally issued in Arizona in the last

few years.

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Chapter 10: Eenie, Meenie, Miney, Mo: Selecting Your Tenants

Consistency is the key to all tenant screening activity, including your efforts

to minimize the chances of renting to someone who may present a direct

threat to the health or safety of others. You need to establish a policy of either

inquiring about past criminal history or running a criminal records search on

all rental applicants to ensure that your rental screening process is applied

uniformly.

Talking with all personal references

Although you may expect that all a prospect’s personal references share

only glowing comments about how lucky you’d be to have the applicant as

your new tenant, investing the time to call all of a prospect’s references is

important for several reasons.

First, you occasionally find someone who tells you that the rental applicant

is her best friend but she never loans him money or lets him borrow her car.

Plus, if you call the given references and find that the contacts are bogus, you

can use this information as part of your overall screening of the applicant.

Dealing with guarantors

If your rental prospect doesn’t meet the criteria outlined in your Statement

of Rental Policy, you may consider approving her application if she provides

a cosigner or guarantor. The guarantor needs to sign a Guarantee of Lease or

Rental Agreement form (shown in Figure 10-1, and also on the CD); however,

a guarantor must be financially qualified and screened, or the guarantee is

worthless.

Signing a separate Guarantee of Lease or Rental Agreement is better than

asking the cosigner to simply sign the rental contract, because doing so

avoids any confusion about whether the cosigner lives in the rental unit if you

need to regain physical possession with an eviction action.

Require your guarantor to complete a rental application, pay the applica-

tion fee, and go through a verification of income screening. This process is

similar to your procedure for the applicant except you don’t need to verify

rental or criminal history. Keep in mind that the guarantor won’t actually be

living at the rental unit and thus will have his own housing costs. So in order

to ensure that the guarantor can meet all his own obligations and cover your

tenant’s rent in case of a default, you need to account for the guarantor’s cost

of housing before comparing it to your income requirements.

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Par t II: Renting Your Proper ty

Figure 10-1:

Guarantee

of Lease

or Rental

Agreement.

Guarantee of Lease or Rental Agreement

On the date below, in consideration of the execution of the Lease or Rental Agreement, dated _________________, 20 _____,

for the premises located at: _____________________________________________ (Rental unit) by and between

_________________________________________________ (Tenant)

_________________________________________________ (Owner) and

_________________________________________________ (Guarantor);

for valuable consideration, receipt of which is hereby acknowledged, the Guarantor does hereby guarantee unconditionally to Owner,

Owner's agent, and/or including Owner's successor and assigns, the prompt payment by Tenant of any unpaid rent, property damage

and cleaning and repair costs or any other sums which become due pursuant to said lease or rental agreement, a copy of which is

attached hereto, including any and all court costs or attorney's fees incurred in enforcing the lease or rental agreement.

If Tenant assigns or subleases the Rental unit, Guarantor shall remain liable under the terms of this Agreement for the performance of

the assignee or sublessee, unless Owner relieves Guarantor by express written termination of this Agreement.

In the event of the breach of any terms of the Lease or Rental Agreement by the Tenant, Guarantor shall be liable for any damages,

financial or physical, caused by Tenant, including any and all legal fees incurred in enforcing the Lease or Rental Agreement. Owner

or Owner's agent may immediately enforce this Guarantee upon any default by Tenant and an action against Guarantor may be

brought at any time without first seeking recourse against the Tenant.

The insolvency of Tenant or nonpayment of any sums due from Tenant may be deemed a default giving rise to action by Owner

against Guarantor. This Guarantee does not confer a right to possession of the Rental unit by Guarantor, and Owner is not required to

serve Guarantor with any legal notices, including any demand for payment of rent, prior to Owner proceeding against Guarantor for

Guarantor's obligation under this Guarantee.

Unless released in writing by Owner, Guarantor shall remain obligated by the terms of this Guarantee for the entire period of the

tenancy as provided by the Lease or Rental Agreement and for any extensions pursuant thereto. In the event Tenant and Owner modify

the terms of said Lease or Rental Agreement, with or without the knowledge or consent of Guarantor, Guarantor waives any and all

rights to be released from the provisions of this Guarantee and Guarantor shall remain obligated by said additional modifications and

terms of the Lease or Rental Agreement. Guarantor hereby consents and agrees in advance to any changes, modifications, additions, or

deletions of the Lease or Rental Agreement made and agreed to by Owner and Tenant during the entire period of the tenancy.

If any legal action or proceeding is brought by either party to enforce any part of this agreement, the prevailing party shall recover, in

addition to all other relief, reasonable attorney's fees and costs. By signing below, Owner, Tenant and Guarantor acknowledge and

accept all terms contained herein.

______________________________ ______________________________ ______________________________

Tenant's Signature Guarantor's Signature Owner's Signature

______________________________ ______________________________ ______________________________

Tenant's Name (print) Guarantor's Name (print) Owner's Name (print)

______________________________ ______________________________ ______________________________

Tenant's Address Guarantor's Address Owner's Address

______________________________ ______________________________ ______________________________

Date Date Date

______________________________ ______________________________ ______________________________

Daytime phone number Daytime phone number Daytime phone number

For example, if the proposed guarantor has a gross monthly income of $4,000

with a $1,000 mortgage payment, he has an adjusted gross income of $3,000.

Assuming you have an income standard that requires the tenant to earn

three times the monthly rent (and assuming the guarantor meets all your

other screening criteria), this person can be the guarantor for your prospect

as long as the rent doesn’t exceed $1,000 per month.

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Chapter 10: Eenie, Meenie, Miney, Mo: Selecting Your Tenants

Although a guarantor can be very important and can give you extra resources

in the event of a rent default by your tenant, out-of-state guarantors aren’t as

valuable as in-state ones. Enforcing the rental contract guarantee against an

out-of-state party can be very difficult, or even financially unfeasible.

Making your final decision

Selecting your tenant is one of the most important decisions you make as a

rental property owner, because choosing your tenant has a significant posi-

tive or negative impact on your success. Ideally, you’ve already established

written tenant screening criteria and a system for evaluating the qualifica-

tions of your rental applicants; if you haven’t, flip back to the previous sec-

tions in this chapter.

Although you need to carefully follow Fair Housing guidelines, never compro-

mise your tenant screening criteria or allow yourself to be intimidated into

accepting an unqualified rental applicant. HUD and state Fair Housing agen-

cies have consistently ruled that rejecting an applicant who doesn’t meet

your objective tenant screening criteria isn’t discrimination, even if the

applicant belongs to a legally protected class.

Some Fair Housing advocates recommend that you have a policy of consid-

ering the applications in the order they’re received and accepting the first

prospective tenant who meets your rental criteria. I feel that as long as you’re

consistent in your tenant selection methods that you should select the tenant

who’s best qualified. However, you need to be prepared for other qualified

applicants who may feel they weren’t treated properly. Clearly document

your business reasons for selecting a certain applicant. Legitimate business

reasons can include the following everything from higher income, more

assets, much better references, superior credit report, and willingness to sign

a longer term lease.

If you use the first qualified applicant method, be sure to note on the applica-

tion the date and time it was submitted, as well as the date and time it was

approved, and that the rental unit is no longer available. This information can

be helpful if qualified applicants from protected classes claim you discrimi-

nated by accepting an application submitted after theirs or allege that you

refused to show available units by claiming they were rented.

Some tenant screening services offer risk scoring of your rental applicant

based on scoring models that they claim are designed to objectively predict

an applicant’s likelihood of fulfilling lease obligations. If you use one of these

services, make sure you can meet the disclosure requirements of the federal

Fair Credit Reporting Act (FCRA). Only use a tenant screening service that’s

willing to provide your denied applicants with a written, detailed notice of

denial to rent that meets all FCRA requirements.

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Notifying the Applicant of Your Decision

Rental property owners are legally allowed to choose among rental appli-

cants as long as their decisions comply with all Fair Housing laws and are

based on legitimate business criteria (see the preceding section for an

idea of legitimate business reasons). Regardless of whether you accept or

reject a rental applicant, be sure to notify him promptly after you make

your decision.

If you approve the applicant, contact him and arrange for a meeting and a

walk-through of the rental unit prior to the move-in date. Don’t notify the other

qualified applicants that you’ve rented the property until all legal documents

have been signed and all funds due upon move-in have been collected in full.

One of the most difficult tasks you face as a rental property owner is inform-

ing a rental applicant that you’ve denied his application. You obviously

want to avoid an argument over the rejection, but even more importantly,

you want to avoid a Fair Housing complaint based on the applicant’s

misunderstanding about the reasons for the denial.

If you deny an applicant, notify him in writing. If you notify the denied appli-

cant by phone only, you may have difficulty giving all the required details

and disclosures. A written notice of denial to rent avoids a situation in which

the applicant may unintentionally (or sometimes intentionally) form the

opinion that you’re denying his application in a discriminatory manner and

file a complaint with the Department of Housing and Urban Development

(HUD) or a state or local Fair Housing agency.

Using a Notice of Denial to Rent form (see Figure 10–2, also available on the

CD) to tell the applicant in writing of your decision is an excellent idea. This

form helps you document the various and valid legal reasons for your rejec-

tion of the applicant. This simple checklist also allows you to provide the

applicant with the information required by the FCRA. If you reject an applicant

based on his credit report, FCRA requires you to notify the applicant of his

rights. You should provide the denied applicant with a letter containing the

mandatory disclosures so that you have proof you complied with the law.

(You must also provide this information even if you’ve approved the applicant

but have required him to pay a higher security deposit or higher rent, or have

a cosigner — see “Dealing with guarantors” earlier in this chapter for more on

cosigners.) Your rejection letter should include:

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Chapter 10: Eenie, Meenie, Miney, Mo: Selecting Your Tenants

Figure 10-2:

Notice of

Denial to

Rent Form.

NOTICE OF DENIAL TO RENT

___________________________________________________________________________________________

All Applicants (full name) listed on application

hank you for applying to rent at:

___________________________________________________________________

We have carefully and thoroughly reviewed your rental application. We are hereby informing you of certain

information required by the Federal Fair Credit Reporting Act. Based on the information currently in our files,

your application has been denied for the following reason(s):

I. Rental History

__ Could not be verified __ Unpaid or delinquent rent reported __ Property damage reported

__ Disruptive behavior reported __ Prior eviction reported __ Other

_________________________________

II. Employment and Income

__ Employment could not be verified __ Local employment could not be verified

__ Irregular or temporary employment __ Income could not be verified

__ Insufficient income __ Other ____________________________________________________________

III. Credit History

__ Could not be verified __ Unsatisfactory payment history __ Collection activity

__ Bankruptcy filing __ Liens, garnishments, or judgments __ Other

_________________________________

IV. Criminal History

__ Conviction for (or pled guilty or no contest to) any felony, or a misdemeanor involving violence, sexual

misconduct or honesty

V. Personal Reference

__ Could not be verified __ Lack of non-related references __ Negative reference

__ Other

_______________________________________________________________________________________

VI. Application

__ Application unsigned __ Application incomplete __ False information provided

__ Rental unit rented to prior qualified candidate __Other

___________________________________________

When a credit report is used in making this decision, Section 615(a) of the Fair Credit Reporting Act requires us

to tell you where we obtained that report. The credit reporting agency that provided information to us was:

Name

__________________________________________________________________________________________

Address

_________________________________________________________________________________________

elephone

_______________________________________________________________________________________

his agency only provided information about you and your credit history and was not involved in any way in

making the decision to reject your rental application, nor can they explain why the decision was made.

Pursuant to the Fair Credit Reporting Act, if you believe the information they provided is inaccurate or incom-

plete, you may call the credit reporting agency at the number listed above or communicate by mail.

You have the right to obtain a free copy of your consumer report from the credit reporting agency indicated

above if your request is made within 60 days of the date of this notice. If you dispute any of the information in

your report, you have the right to submit a consumer statement of up to 100 words into your report explaining

your position on the item in dispute. The credit reporting agencies offer assistance in preparing your consumer

statement.

If information was received from a person or company other than a credit reporting agency, then you have the

right to make a written request to us within 60 days of receiving this notice for a disclosure of the nature of this

information.

You may have additional rights under the credit reporting or consumer protection laws of your state or local

municipality. For further information contact your state Attorney General or consumer affairs office.

________________________________________________ ____________________________

Owner or Agent for Owner Date

 The names, addresses, and phone numbers of all credit reporting

agencies that provided you with information.

 A notice that the credit reporting agency only provides information

about credit history, takes no part in the decision process, and can’t

give reasons for the rejection.

 A notice that the applicant has the right to obtain a free copy of the

credit report from the credit agency if he requests it within 60 days of

your rejection.

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 A notice informing the applicant that he has the right to dispute the

accuracy of the information on the report. He can also demand a rein-

vestigation or provide the credit reporting agency with a statement

describing his position.

 A notice that if information was received from a person or company

other than a credit reporting agency, the applicant has the right to make

a written request within 60 days of receiving this notice for a disclosure

of the nature of this information.

Keep a copy of all rejection letters for at least four years.

Avoiding Housing Discrimination

Complaints

If you’re in the rental housing business for long, you’ll hear about a shock-

ing settlement or award against a rental property owner for violating a Fair

Housing law. Many of these awards or settlements can exceed $100,000. In

a recent ten-year period, Fair Housing discrimination cases investigated by

HUD alone resulted in awards of more than $42 million.

You may even have read about the facts of certain Fair Housing cases and

thought to yourself that the defendants deserved to lose and that a discrimi-

nation case will never happen to you. That’s probably true — if you’re an

educated owner and you know and abide by all federal, state, and local Fair

Housing laws. The problem arises when rental property owners are unaware

that their policies or practices are discriminatory. For example, you may

think that you’re just being a courteous and caring landlord by only show-

ing rental applicants with children your available rental units located on the

ground floor. But not giving applicants without children the same treatment

you give others is a form of discrimination — even if that wasn’t your intent.

Federal and state laws prohibit discrimination against certain protected

classes in rental housing. These laws impact your tenant screening and

selection process, and I cover the issues surrounding these laws in the

following sections.

The ins and outs of Fair Housing

Discrimination is a major issue for rental property owners, and it has

serious legal consequences for the uninformed. If you don’t know the law,

you may be guilty of various forms of discrimination and not even realize it

until you’ve been charged.

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Our legal system acknowledges two types of Fair Housing discrimination:

 Treating members of protected classes differently from the way you

treat others who aren’t members of that protected class: For example,

say you have two applicants with similar financial histories, tenant

histories, and other screening criteria, but charge one applicant who’s

a member of a certain protected class a larger security deposit. You may

be subject to a Fair Housing discrimination inquiry or complaint on the

basis of different treatment.

 Treating all prospects equally, but having a disparate impact because

of an individual’s minority status: If your occupancy standard policy

is two persons per bedroom, you may be accused of familial status

discrimination based on disparate impact, which is when a policy is

the same for all applicants, but it has a much different effect on certain

applicants and essentially creates an additional barrier to rental housing

for families. Although you’ve set an occupancy standard policy that’s

applied equally to all tenants, your restrictive policy discourages appli-

cants with children. This scenario is an example of disparate impact.

The federal Fair Housing Act prohibits discrimination on the basis of race,

color, religion, ethnicity, sex, age, familial status, and physical or mental

disability. Several states and many major cities have laws to protect individ-

uals affected by other issues that aren’t specifically protected under federal

Fair Housing laws. Examples include occupation, educational status, medical

status, sexual orientation, source of income, and physical body size.

Although several states still have laws prohibiting unmarried couples from

living together, the majority of states have very broad Fair Housing laws

forbidding all arbitrary discrimination on the basis of an individual’s personal

characteristics or traits. Always be sure to fully understand the Fair Housing

requirements and limitations that apply to your rental property.

When renting your property, keep some of these specific pointers in mind:

 Be careful not to inadvertently favor one sex as renters. For example,

some rental property owners may have the perception that male

tenants aren’t as clean or quiet as female tenants. Conversely, some

owners with rental properties in rough areas may believe that male

tenants are less susceptible to being victims of crime. As a result, these

owners may attempt to restrict female tenants to upper-level rental

units. Don’t allow any stereotypes or assumptions to enter into your

tenant selection criteria.

 Consider adding Fair Housing posters in another language if you

have a rental unit in an area where a significant portion of the local

population doesn’t speak English. HUD offers free Fair Housing posters

in many different languages so that you can easily find one that’s most

applicable to your locale.

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 Pay attention to age-related issues. Although the federal Fair Housing

Act doesn’t specifically state that age is a protected category, many

states and localities have laws that directly address the issue of age.

Typically, you can deny rental applicants who’re less than 18 years

of age unless they are currently or were previously legally married, an

active-duty member of the military, or emancipated by court order.

In these cases, you must treat them just like any other adult rental

applicant.

Following are three main exemptions to the federal Fair Housing laws:

 An owner-occupied rental property with four or fewer units.

 Single-family housing rented without the use of discriminatory advertis-

ing or without using an agent to facilitate or handle the leasing.

 Housing reserved exclusively for seniors that’s intended for and solely

occupied by persons 62 years of age or older (which includes spouses

and adult children but excludes caregivers and on-site employees).

Also HUD-certified seniors properties where 80 percent or more of the

households are occupied by at least one person who’s 55-years-old. In

both cases, the exemption is only against claims of age discrimination.

Many states, and even local governments, have passed their own legislation

that may apply to your rental property and affect the above exemptions.

Don’t count on an exemption and be sure to abide by all Fair Housing laws

that may be applicable to your property, even if you think you’re exempt.

Abiding by all Fair Housing laws not only eliminates any potential complaints,

but it’s also simply the right thing to do.

Steering and chilling

Steering means to guide, or attempt to guide, a rental applicant toward living

where you think she should live based on race, color, religion, ethnicity,

sex, familial status, physical or mental disability, or another protected class.

Steering is an illegal act that deprives persons of their right to choose to

rent where they want. HUD has clearly indicated that not showing or renting

certain units to minorities is one form of steering. Another form according

to HUD is the “assigning of any person to a particular section or floor of a

building” based on any of the protected classes listed previously.

Rental property owners often have only good intentions when they suggest

that a rental prospect with children see only rental units near the play-

ground. However, the failure to offer such an applicant an opportunity to see

all available rental units is steering — and a violation of Fair Housing laws.

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Chapter 10: Eenie, Meenie, Miney, Mo: Selecting Your Tenants

Steering can be subtle or very direct. Some examples of steering include

 Limiting families or persons with disabilities to ground floor units

 Offering families or minorities only units near the playground or by

the laundry room or elevator, because noise makes these units less

desirable

 Relegating families to certain buildings or sections of a building, or

having separate family and adult buildings

A similar concept is known as chilling, which is making comments or estab-

lishing rules designed to discourage certain applicants from renting. Some

examples of chilling include

 Pointing out property hazards to applicants with children that you

don’t point out to all applicants

 Showing only undesirable units in the hope that the applicant

doesn’t rent

 Questioning disabled or elderly applicants about their disabilities or

whether they can care for themselves or should live alone

 Telling certain applicants something negative about the property that

isn’t true

Be very careful not to make any suggestions or comments that can be misin-

terpreted as steering or chilling. All rental applicants should receive the

same information on the area, the property, and the full range of rental units

available so that they can decide for themselves which units they want to see.

Children

Federal and state legislation has virtually eliminated “adult only” housing

except for certain HUD-certified seniors properties. I always recommend that

rental property owners openly accept renters with children. Families tend

to be more stable, and they’re looking for a safe, crime-free, and drug-free

environment in which to raise their children. Along with responsible pet

owners, who also have difficulty finding suitable rental properties, families

with children can be excellent, long-term renters. And typically the longer

your tenants stay, the better your cash flow.

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Some rental property owners are concerned about renting to families with

children because the property has hazards that may be dangerous for

children. For example, the property may not have any safe areas for children

to play. Although you may truly only have the children’s best interests in

mind, the parents have the right to decide whether the property is safe for

their children. Of course, you do need to take steps to make your property as

safe as possible by posting speed limit signs in your driveway or including

restrictions on recreational use of driveways and parking areas.

Be careful not to discourage applicants with policies and guidelines for the

conduct of children unless these rules are safety-related. For example, don’t

institute a policy against children riding bicycles on the property. Instead, you

can have a policy that says no one is allowed to ride bicycles on the property.

(This way, the policy doesn’t discriminate against children; it’s uniformly

applied to all.) Avoid using any terms that are obviously directed at children,

such as “minors,” “toys,” “tricycles,” “diapers,” “playing,” and the like. Make

sure all your policies are age-neutral except for certain health and safety

issues. For example, some states have specific laws requiring rental owners

to have policies that, in order to use swimming pools or spas, children under

14 must be accompanied by an adult.

Charging rental applicants with children higher rents or higher security

deposits than applicants without children is illegal, as is offering different

rental terms, such as shorter leases, fewer unit amenities, or different

payment options. The property’s facilities must also be fully available for all

tenants, regardless of age, unless a clear safety issue is involved.

Reasonable accommodations

The federal Fair Housing Act requires property owners to make reasonable

accommodations for tenants with physical or mental disabilities so that

they’re able to enjoy the rental property on an equal basis with tenants who

don’t have disabilities. The cost of these accommodations may involve a

reasonable expenditure by the landlord, or the tenant may offer to make the

accommodations at his expense. Requests for reasonable accommodations

are valid if made verbally, but you should ask the tenant to make the request

in writing. If that’s not feasible, you can put the request in writing and have

the tenant verify the information and sign or initial it.

The Fair Housing regulations state:

“It shall be unlawful for any person to refuse to make reasonable accom-

modations in rules, policies, practices, or services, when such accom-

modations may be necessary to afford a handicapped person equal

opportunity to use and enjoy a dwelling unit, including public and

common areas.”

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Chapter 10: Eenie, Meenie, Miney, Mo: Selecting Your Tenants

Rental property owners are required to make reasonable adjustments to their

rules, procedures, or services upon request. Landlords must refrain from

assuming someone has a disability or inquiring if someone does. Each request

for a reasonable accommodation must be considered seriously.

Examples of reasonable accommodations that you may be required to offer

include

 Providing a parking space that’s wider and closer to the rental unit of a

wheelchair-bound tenant

 Arranging to read all management communications to a tenant with

poor vision

 Allowing a tenant who receives income from a government agency to

pay on a biweekly rather than monthly basis

Reasonable modifications

Federal law also provides that rental property owners are required to allow

a tenant with disabilities the right to modify her living space at her own

expense (except in project-based, HUD-subsidized housing, in which the land-

lord may be obligated to pay for reasonable modifications — see Chapter 21

for more on HUD-subsidized housing). The modifications can only be to the

extent necessary to allow the resident an equal opportunity to use and enjoy

the premises. If the modifications will make the unit unacceptable to the next

tenant, the landlord may require that the current tenant agree to return the

rental unit to its original condition upon vacating the property. The rental

property owner can also require the tenant to pay the funds necessary to

perform the needed restoration into an interest-bearing escrow account.

Reasonable modifications that tenants may request to make at their expense

include

 Ramps at the rental unit entry

 Lower light switches and the removal of doors or widening of doorways

to allow for wheelchair access

 Grab bars or call buttons in bathrooms

 Lower kitchen cabinets and the removal of base cabinet doors

 Service animals allowed in the pool area even though you don’t permit

other animals there

 Roll-in showers

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The modifications must be reasonable. You can require the tenant to obtain

your prior approval and ensure that the modification will be made in a work-

manlike manner, including any necessary government approvals or permits.

You can also require the tenant to provide verification that she fits the defini-

tion of a disabled person and that a disability-related need exists for the modi-

fication if the disability and the need aren’t apparent. But you can’t ask about

the specific disability of the tenant that necessitates these changes.

Companion or service animals

If you have a “no pets” policy, keep in mind that Fair Housing law requires

rental property owners to make “necessary and reasonable accommodation.”

One specific common accommodation is not having any limitations or not

discouraging occupancy by tenants who need a support animal. Companion

or service animals that assist tenants with daily life activities aren’t pets;

they’re exempt animals and must be allowed in all rental properties, regard-

less of any “no pet” policies. Fair Housing laws also prohibit you from

requiring an animal or pet deposit, or increasing the tenant’s security deposit

because he has a support animal. Further, you can’t make any rules limiting

the types or breeds of animals (for example, allowing German shepherds

only) or an unreasonable size restriction. You can, however, establish rea-

sonable rules of conduct for the animals and should note that the tenant is

still responsible for any damages done by the animal.

Some tenants seek the accommodation of a companion animal based on

their need for comfort or companionship, and federal law requires owners

and managers to grant the request if the tenant’s claim is true and reason-

able. The best method of determining reasonability is to obtain verification

from the tenant’s healthcare provider or other professional such as a

medical doctor, therapist, or social worker. To avoid claims of discrimination

or favoritism, set a consistent policy of requesting official verification before

allowing any companion animals. Of course, like all potential housing

discrimination issues, failing to consider a tenant request can lead to serious

legal consequences.

Determining what’s reasonable in the eyes of Fair Housing officials is always

murky, so look at each request individually to make a proper decision. For

example, a tenant in a one-bedroom apartment who requests to keep two large

dogs as companion animals is being unreasonable, but the same request from

a tenant in a large, single-family home with a yard is most likely a reasonable

request. If you’re uncertain as to whether a particular request is reasonable,

seek direction from local Fair Housing agencies or legal counsel whenever

possible. Ask these representatives to provide you with their written opinion

or send you a letter outlining their verbal directive; be sure to keep copies of

this documentation in your rental files.

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Chapter 10: Eenie, Meenie, Miney, Mo: Selecting Your Tenants

Americans with Disabilities Act

Discrimination against people with disabilities in residential housing is cov-

ered in the federal Fair Housing Act. However, in July 1990, Congress passed

the Americans with Disabilities Act (ADA) which has far-reaching impact on

most commercial and retail real estate. The ADA has limited requirements for

many rental property owners, because it applies only to the public areas and

not the private or common areas of residential properties.

Under the ADA, all areas of a property to which the public is invited must

be accessible by individuals with disabilities. For example, a rental property

with an on-site office (and other public amenities, like a clubhouse, rental

unit models, or a pool and spa area) must be accessible to persons with

disabilities. The removal of existing physical barriers at the rental property

owner’s expense is required whenever it’s “readily achievable and technically

feasible.” The ADA also establishes parking requirements if the residential

property provides public parking, such as prospective resident spaces.

Often you’ll be able to simply restripe your parking areas to provide the

required parking but be careful, because many local municipalities have very

specific parking requirements for multi-unit rental properties. You want to

make sure before you make any changes that your new parking layout meets

the minimum parking requirements for your property zoning. Check with your

local building and code enforcement office for details.

The ADA applies to all residential properties, even those built prior to the

passage of the law. Owners of residential properties occupied prior to March

13, 1991, are required to remove barriers to accessibility, but they aren’t

required to make changes that may cause undue hardship. Owners of proper-

ties occupied after March 13, 1991, must comply with ADA and should be in

compliance with the federal Fair Housing Act, too. Professional complainants

seek out ADA violations in both residential and commercial rental properties,

so know what you’re responsible for accommodating.

If you have a rental property with public areas, you may want to consider

using the services of a qualified contractor, architect, or engineer with

specific ADA knowledge to conduct a physical assessment and evaluation

of your property and make compliance recommendations. You should also

consult your rental housing legal advisor if you have any questions about

ADA compliance. For more information on ADA requirements for residential

rental property owners, visit the federal Department of Justice ADA Web site

at www.usdoj.gov/crt/ada/adahom1.htm.

If your prospective tenant has a physical or mental disability that substan-

tially limits one or more major life activities, or has a record of having such a

disability, you must allow him to make reasonable modifications to your rental

property, including common areas, if necessary for him to use the rental

housing. Conditions qualifying as physical or mental disabilities are evolving,

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but this term can include mobility, hearing, and visual impairments; chronic

mental illness; chronic alcoholism; AIDS or AIDS-related illness; or mental

retardation. Many state and local laws are expanding the definition of their

protected categories, so be sure to check with legal counsel if you ever have

any questions regarding the rights of your tenants under federal or state Fair

Housing laws.

Sexual harassment

Sexual harassment, in the world of property management, occurs when you

refuse to rent to a person who rejects your sexual advances, or when you

make life difficult for or harass a tenant who resists your unwanted advances.

Most rental property owners understand the concern and find such behavior

unconscionable. Yet this problem often arises when rental property owners

hire someone to assist them with the leasing, rent collection, or maintenance

requirements at their properties. If the vendor or contractor commits sexual

harassment, the rental property owner is accountable because the offender

is the employee or agent of the owner.

Make sure you have a clear written policy against sexual harassment,

provide an open-minded procedure for investigating complaints, and conduct

thorough and unbiased investigations that lead to quick corrective action,

if necessary.

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Part III

The Brass Tacks of

Managing Rentals

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In this part . . .

anaging rental property involves a lot more than

just managing the property itself. Working with

tenants — from orienting a tenant to your rules prior to

move-in to having the paperwork in order when a tenant

moves out — is what you’ll spend a huge chunk of your

time doing. So the chapters in this part take you through

that relationship step by step. I show you how to help

tenants at move-in and move-out times, how to increase

the rent without losing your tenants, and how to retain

the good tenants and deal with the bad ones. Chances are

you can find the answer to any question you may have

about your tenants in this part.

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Chapter 11

Moving In the Tenants

In This Chapter

 Agreeing on a move-in date

 Walking your tenants through the policies and procedures of your property

 Noting the condition of the unit before the move-in date

 Keeping all the paperwork organized

 Making your new tenants feel welcome in their new home

fter selecting your new tenants, you still have to complete one

very important step to ensure you establish a good landlord-tenant

relationship: moving in the tenants. In order to guarantee the tenants’

move-in process goes smoothly, you need to hold a tenant orientation and

rental property inspection meeting, which allows you the opportunity to

present the rental property and your ownership and management skills

in the best possible light. You also need to make sure your new tenants

understand and agree to the policies and rules you’ve established for the

rental property.

If you’re organized and prepared, you’ll be able to quickly and efficiently

handle the necessary administrative steps to get the tenants into their new

rental unit. Tenants are very excited and motivated to begin moving in to

their new home, and you want this process to be smooth and pleasant for

everyone.

In this chapter, I outline the important steps to start your landlord-tenant

relationship off on the right foot, including scheduling the move-in date and

the tenant orientation meeting, conducting the preoccupancy inspection and

documenting the unit’s conditions, providing important policies to tenants

in a written format, and using creative ideas to welcome your tenants on

move-in day.

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Part III: The Brass Tacks of Managing Rentals

Establishing the Move-In Date

When you inform your prospective tenant that his rental application has

been approved, you need to determine a mutually agreeable move-in date.

You and the tenant may have discussed this date during your initial tele-

phone conversation or when you showed the rental property, but be sure

to raise the issue again to guarantee you’re in agreement of the date.

After new tenants have been approved, some suddenly stall on setting the

move-in date. They may stall because they’re still obligated under a lease or

30-day notice at another rental property and don’t want to double pay. Unless

you’re willing to suffer additional rent loss that you can never recover, insist

that the tenant begin paying rent to you on the originally scheduled move-in

date. The time for your new tenant to negotiate the move-in date was before

you approved him.

In some situations, your rental unit may not be available at your mutually

agreed move-in date. Perhaps the prior tenants didn’t vacate when they

said they would, perhaps the rental unit was in much worse condition than

you anticipated, or perhaps you just weren’t able to complete the required

prep work in time. If a delay in having the rental unit available as promised

appears inevitable, communicate with your new tenant immediately. Often,

a new tenant can adjust his move-in date as long as you give him reasonable

notice. If he can’t adjust his move-in date, communicate with him and try to

work out other possible arrangements.

Sometimes new tenants ask whether they can move just a few items into the

rental unit before your preoccupancy conference. Don’t allow it! You create

a landlord-tenant relationship simply by letting the new tenants have access

to the rental unit without you present or by allowing them to store even a few

items in the unit. If you have to cancel the rental for any reason, you then need

to go through a formal legal eviction that can take several weeks.

Although the rental property should be in rent-ready condition before being

shown to rental prospects, it can quickly get dirty or dusty if there’s any

delay between showing the property and moving in the new tenants. So

before meeting with your tenant prior to move-in (covered in the following

section), make one last visit to the rental unit and go through your rent-ready

inspection checklist (flip to “Having the tenant sign an inspection checklist”

later in this chapter for the scoop on this item) again just to make sure you

don’t encounter surprises when move-in day arrives.

Moving is very stressful for most people, and if your new tenant has a bad

move-in experience, this feeling can last for months, or even stay in his mind

throughout the tenancy. Many aspects of the tenant’s move are beyond

your control. Although you can’t guarantee your new tenant a simple and

painless move, you can take steps to ensure you’re organized and ready to

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Chapter 11: Moving In the Tenants

handle any complaints or concerns about his new home. If at all possible,

arrange to be on the premises during his move-in so you can answer any

questions.

Meeting with a Tenant Prior to Move-In

After you and your tenant have decided on a move-in date, you need to meet

to deal with some of the technicalities, like walking through the property,

signing paperwork, and handing over the keys. Getting together to do this is

a very important step, and you need to do it before your new tenant actually

moves in and takes possession of the rental unit.

Schedule a meeting with the tenant either for the day of the scheduled move-

in or within just a few days before the move-in date. At this meeting, you

review your property policies and rules, review and sign all the paperwork,

collect the move-in funds, conduct a thorough property inspection with your

new tenant, and complete the Move-In/Move-Out Inspection Checklist (which I

explain later in this chapter).

The following sections walk you through each step of the move-in process.

Covering the rules with your new tenant

When you meet with your new tenant, start by giving her a copy of your house

rules (see Figure 11-1 for an example of this kind of document). Give her a

chance to read over the rules and ask questions, providing clarification as

necessary. Then ask for her signature, which indicates she has received and

understands the rules and agrees to abide by them.

The phrase rules and regulations tends to sound rather imposing to most ten-

ants. So I recommend using the phrase policies and rules, or simply house

rules, whenever possible. Some rental housing owners and managers use the

phrase policies and guidelines, but I feel that you need to make it very clear

that these are legally enforceable rules, not optional guidelines. Your policies

and rules are separate from the rental contract, which is drafted by an attor-

ney using lots of formal and hard-to-understand terminology. The rules you

draft should be more informal and conversational in tone than your rental

contract. Be sure to use clear language that’s neither harsh nor demeaning.

Many owners and managers of single-family or small rental properties don’t

worry about detailed rules and regulations, because they think the rental

contract covers it all. But setting up some basic rules that can easily be

changed as necessary upon proper written notice to the tenants is a good

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194

Part III: The Brass Tacks of Managing Rentals

idea. This tactic shows that you and your tenants are on the same page and

gives you flexibility in managing your property.

Figure 11-1:

House

Rules.

Policies and Rules

We are proud of this property and we hope that your living experience here will be pleasant and comfortable.

The support and cooperation of you, as our tenant, is necessary for us to maintain our high standards.

This is your personal copy of our Policies and Rules. Please read it carefully as it is an integral part of your

rental agreement. When you sign your rental agreement, you agree to abide by the policies and rules for this

rental property, and they are considered legally binding provisions of your rental agreement. If you have any

questions, please contact us and we will be glad to help.

This document is an addendum and is part of the Lease or Rental Agreement, dated ____________, by and

between _______________________________, Owner, and _______________________________Tenant,

for the premises located at: ___________________________________________________________________.

New policies and rules or amendments to this document may be adopted by Owner upon giving 30 days written

notice to tenant.

Guests: Tenant is responsible for their own proper conduct and that of all guests, including the responsibility

for understanding and observing all policies and rules.

Noise: Although the Premises are well constructed, they are not completely soundproof and reasonable

consideration for neighbors is important. Either inside or outside of the Premises, no tenant or their guest shall

use, or allow to be used, any sound-emitting device at a sound level that may annoy, disturb, or otherwise

interfere with the rights, comforts, or conveniences of other tenants or neighbors. Particular care must be taken

between the hours of 9:00 p.m. and 9:00 a.m.

Parking: No vehicle belonging to a Tenant shall be parked in such a manner as to impede passage in the street

or to prevent access to the property. Tenant shall only use assigned and designated parking spaces. Tenant shall

ensure that all posted handicap, fire zones, or other no-parking areas remain clear of vehicles at all times.

Vehicles parked in unauthorized areas or in another tenants designated parking space may be towed away at

the vehicle owners expense. Vehicles may not be backed in, and repairs and maintenance of any sort are not

allowed on the premises. All vehicles must be currently registered and in operative condition. No trucks,

commercial vehicles, recreational vehicles, motorcycles, bicycles, boats, or trailers are allowed anywhere on the

Premises without advance written approval of the Owner. All vehicles must be parked properly between the

lines of the parking space. Tenant shall ensure that their guests abide by all of these parking policies and rules.

Patios/Balconies and Entry Areas: Patios/balconies and entry areas are restricted to patio-type furniture and

are to be kept clean and orderly. No barbecues or similar cooking devices may be used on the Premises without

advance written approval. No items may be hung from the Premises at anytime, and all entryways and

walkways must be kept free from items that could be a hazard. Owner reserves the right to require that items

that detract from the appearance of the Premises be removed immediately upon request. No unauthorized

storage is allowed at any time.

Wall Hangings: Pictures may be hung on a thin nail. Mirrors, wall units, hanging wall or light fixtures, etc.

need special attention and professional installation. Please contact the Owner for approval in advance as damage

to the Premises will be the responsibility of the Tenant.

Trash: Tenant is responsible for keeping the inside and outside of the Premises clean, sanitary, and free from

objectionable odors at all times. Tenant shall ensure that all trash, papers, cigarette butts, and similar items are

sealed in trash bags and placed in appropriate receptacles. No trash or other materials shall be allowed to

accumulate so as to cause a hazard or be in violation of any health, fire, or safety ordinance or regulation.

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Chapter 11: Moving In the Tenants

When establishing and having your new tenant review your rules, keep the

following points in mind to reduce the chances of any future headaches:

 Make sure your tenant actually reads and follows your rules but

try not to be too overbearing. Review your rules with several of your

friends and colleagues to find better ways to say the same thing. Be

clear, direct, and firm, yet not condescending. And watch out for some-

thing called the no index. The no index happens when many of your

rules are too blunt and negative, such as “No cash,” “No glass in the

pool area,” “No storage on your balcony,” or “No riding bikes on the

grounds.” Although each of these rules is reasonable and important for

the safe and efficient operation of your rental property, you can say the

same thing in a much more positive way. For example, instead of saying,

“No riding bikes on the grounds,” you can say, “Please walk your bikes

in the common area.” Or instead of saying, “No cash,” you can say, “We

gladly accept your checks or money orders.” Phrasing the rules in a

more positive tone and minimizing the no index makes the rules — and

you — seem friendlier to your tenant.

 Verify that your house rules are reasonable and enforceable. They

must not discriminate against anyone in a protected class. The term

protected class refers to the federal antidiscrimination laws that “protect

classes” of people because of race, gender, ethnicity, religion, and so on.

 Be particularly careful to review your house rules to avoid any refer-

ence to children, unless the reference is related to certain health and

safety issues. For example, you can have a rule that states, “Persons

under 14 must be accompanied by an adult while using the spa,”

because legitimate safety concerns exist regarding unattended children

in spas. But a rule that says, “Children aren’t allowed to leave bicycles in

the common area” is inappropriate, because it singles out children and

implies that adults can leave bikes in the common area if they want. A

better way to handle this issue is to use wording that isn’t age-specific,

such as “No one is allowed to leave bicycles in the common area.” With

this verbiage, the rule applies to everyone and doesn’t discriminate

based on age.

 Regularly review and make improvements in your house rules based

on situations you’ve encountered. But remember that you’re not run-

ning a prison camp, and you don’t want to alienate a tenant by harassing

him or her with rules or controlling his or her day-to-day life.

As you revise your house rules, indicate the latest revision date in the lower

left corner of the document so that your tenants know which rules are the

most current. When you distribute this revised document, be sure to remind

your tenants that these house rules supersede any prior versions. Get signa-

tures from all your tenants, indicating they’ve received them and will comply.

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196

Part III: The Brass Tacks of Managing Rentals

Reviewing and signing documents

Tenants and property owners alike are usually aware of all the legal paper-

work involved in renting a home. And although sifting through all that lega-

lese isn’t fun for anyone, doing so is important. Rental property owners and

tenants each have specific legal rights and responsibilities that are outlined

in these documents, and being aware of what you’re agreeing to — and being

sure your tenants know what they’re agreeing to — is crucial.

In the next several sections, I outline the documents you need to go over with

your new tenant and have him or her sign.

Rental contract

Be sure your tenant understands that when he signs your lease or month-to-

month rental agreement, he’s entering into a business contract that has sig-

nificant rights and responsibilities for both parties. Before your tenant signs

the rental contract, carefully and methodically review each clause.

Certain clauses in the rental contract are so important that you should have

the tenant specifically initial them to indicate he’s read these points and

And then there was light. . . .

Tenants usually aren’t very anxious to begin

paying for utilities, so you need to be sure your

procedures clearly state that your new tenant

must immediately contact the utility companies

and put the utilities that are his responsibility in

his name. Most rental property owners have the

utilities revert to their name when the rental unit

becomes vacant for unit turnover and rental

showings. So if your new tenant doesn’t change

the utility billing information, you may end up

paying for some of his utility bills. One way to

make sure your new tenant handles this matter

promptly is to confirm he’s dealt with the utili-

ties prior to releasing the mailbox key to him.

An even better way to avoid paying for the ten-

ant’s utilities is to have a policy as part of your

tenant orientation meeting that you provide the

contact information for all utilities. Then require

your new tenant to contact all utility companies

and establish the bills in his name while in your

presence.

With the high cost of utilities, you need to be

certain you and your tenants are on the same

page regarding who is financially responsible

for the rental unit’s utility charges. In many

states, rental property owners are required

to disclose whether tenants are financially

responsible for payment of any utility services

outside of their rental unit. For example, exte-

rior common area lighting may be connected

to a rental unit or a common area natural gas

barbeque may be connected to a tenant’s gas

meter. Besides disclosing this fact, many states

require rental property owners to give tenants

an appropriate rent credit for the common area

utilities they help pay. Check the laws in your

area and be sure to disclose this kind of infor-

mation if you’re so required.

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