One of the most daunting aspects of renting out your house is to find the right tenant. It's easy to get absorbed into the fear-mongering that is often seen associated with bad tenants and delinquencies. But here's a reality check: millions of property owners rent their homes to good tenants without any problems. The key is to screen the tenants before approving them.
The good news is that becoming a landlord is relatively easy as long as you get the basic steps right. Here's what you need to know.
Finding the Tenants
This step is a lot like job hunting - it's a hit and miss, and takes some time to get it right. You can use online portals like Craiglist and Zillow to find tenants and speed up the process or consult a property manager for help on this matter. Some of these platforms are free to use. We advise against listing your complete address for safety reasons.
Pro tip: When using platforms like Craigslist, add the general vicinity of the neighborhood to keep things ambiguous while also providing clues about the property, such as proximity to schools and malls.
Consult a real estate agent to determine how much you should charge. The right number depends on several factors such as location, proximity to urban centers, and various amenities such as in-house gym and pool.
Screening Rental Applicants
The tenant screening process should include the following:
- Credit score check
- Gross monthly income (should be three times or more than the monthly rent)
- Proof of monthly income
- References from previous landlords (watch out for bitter landlords though)
- Total number of occupants moving in
You can qualify nearly all tenants using the above checkpoints. Don't schedule a meeting with them and waste your time if the tenant fails to satisfy all of the above points.
Get a Property Manager (optional)
This will make your life much easier. All of the paperwork and maintenance requirements will be handled by the property manager. Depending on the services you hire, the property manager may find a new tenant for you. The best part is that you won't have to worry about rent collections since they'll do it for you.
Security Deposit
The security deposit is important because it will help ensure that your tenant fulfills their part of the lease agreement. Keep in mind that the deposit is not a fee. You should not use the money and you should keep it in a separate bank account. Make sure to return it to the tenant when they move out - minus any damages that need to be repaired.
Make Repairs or Upgrades
Minimize your liability by fixing anything that could pose a danger to your tenant or against occupancy codes in your area. This is why it pays to hire an experienced property manager who is well versed in this area.
Besides, fixing things will only make your property more attractive. The property should be in good working order.
Get Landlord Insurance (optional)
This step is not mandatory but highly recommended. Landlord insurance may cover damage to the property, maintenance equipment you own, and protection of outbuildings such as sheds and pools. In addition, you'll have coverage for minor accidents and injuries that may happen on the property. This also includes any resulting legal fees should the matter end up in court.
Landlord insurance can also cover loss of rent if the property is unlivable due to unmitigated circumstances such as storms or floods.
Set the Rules for Occupancy
Put a limit on the number of people who can live in your home at a time. Create a pet policy if you want to set limits on animals on your property. For example, you could allow cats and dogs but not exotic pets such as reptiles and birds. It's also important to set guidelines for cleanliness and waste disposal.