Renting Properties Successfully
Building up a real estate portfolio of rental properties is a great way to increase net worth and to create ongoing income. The goal in managing rental properties is to find stable long-term tenants, minimize the expense of preparing a rental property for a new tenant, and keep the rental properties occupied.
There are, however, pitfalls to avoid, which can destroy all profits quickly. All it takes is one bad, destructive tenant to create a major financial setback. There are strategies to minimize losses from bad tenants, which is the major problem in the rental business.
Here are proactive strategies to minimize tenant troubles:
Advertise Selectively
Putting a rental sign up for all those who pass by to see or advertising on the Internet or in classified ads in newspapers, opens up the rental opportunity to everyone. This may not be the best strategy to find high quality renters.
The Fair Housing Act
It is important to understand the law. The Fair Housing Act prohibits discrimination based on color, race, religion, national origin, disability, sex, or if the renter has children. It is possible to follow the law properly and still increase the chances of getting a good renter by selectively advertising rental vacancies.
Advertise Vacancies to Groups of Quality People
This strategy is to put advertisements in the places where good renters are more likely to see them. This could be advertising at a church, synagogue, or mosque. It could be placing ads on the bulletin board for employees of certain organizations such as companies who employ professional workers or hospitals. Other possibilities are advertising in the newsletters of business associations or other social groups.
There is no guarantee of getting a good renter with this strategy. Some of the finest professionals live like slobs and can be just as destructive as others can. However, by selectively advertising, the chances are better than advertising to the general public. Again, this is NOT about discrimination. This strategy is only about trying to increase the chances of getting a good renter. It is better to take the time necessary to find a good renter, than to deal with the damage and eviction problems caused by a bad renter.
Run Background Checks
On the rental application; make sure it includes permission from the prospective new tenant to run a background check. Make sure they sign the application giving permission. Credit checks and searches for judgments will help determine the stability of an applicant. Ignore references, as they are not reliable.
Accept Pets with a Pet Deposit
A study by the Foundation for Interdisciplinary Research and Education Promoting Animal Welfare (FIREPAW.org) found that tenants with pets make better renters. These tenants have a tendency to stay longer and make a rental unit a home. The estimate is 72% of renters have pets. This means by being pet-friendly, the chances of getting a renter for a property are more than doubled.
Evictions
Evictions are sometimes necessary as a last resort. There is a counter-intuitive strategy, which may work better. Sometimes it is more effective to offer a cash reward for vacating a property and turning over the keys, than to go through the legal expense of an eviction. Sometimes bad tenants will grab the money and run. This may be more cost effective in the end.
Summary
The goal is to find stable, long-term renters. It is helpful to follow these basic guidelines to have a good result.
References
Fair Housing-It’s Your Right
http://portal.hud.gov/hudportal/HUD?src=/program_offices/fair_housing_equal_opp/FHLaws/yourrights
The Foundation for Interdisciplinary Research and Education Promoting Animal Welfare
http://www.firepaw.org/CompanionAnimalRentersPetFriendly.pdf