One of the reasons most people run away from Real Estate investing is because once you have had the “pleasure” of a few bad landlord experiences it will really truly discourage you. Early in my career I purchased a rental property with a partner. I was not yet 25 and had already owned my first rental. I was young and beginning to build my empire. Well I can tell you I made every possible mistake. First I rented to a “friend of a friend” with absolutely no prescreening process, no lease and no deposit. (I did say I made every possible mistake)
After several months of continuous late payments my so called tenant stopped making payments altogether. They went on to live in the property for about 3 more months totally free on my dollar. After finally forcing them out guess what condition the property was in. Not only did I lose 3 months of rental payments I now had Thousands of dollars of damages and cleanup to deal with. Well since I was so desperate and cash poor at the time I needed to rent the property again as fast as possible and took the first warm body that came along. This time I had a lease and a deposit. The gentleman paid in cash (which should have been a tip off) and things were good. He actually paid me the first month on time and we were once again on our way.
The following month he began to make those wonderful phone calls about things that breaking, clogged toilets, none of which were his doing, and even said his yard needed mowing, after he agreed in writing to maintain the lawn. We diligently made the necessary repairs and not wanting to lose the lawn we had a landscaper assigned to the property and agreed to deal with the drama at a later date. Well the second month rent was due and surprise, there was no payment. I won’t bore you with the grizzly details but just say here that we sold the property at a loss, even at a time when values in the market were increasing. We did not care; we could not dump the property fast enough.
After that experience I never wanted to own a rental again. At the time I had it all wrong. what should have been an education to be a better landlord, instead made me vow never own another rental home I share this because I hear stories like this all the time; usually followed by the comment “never again”. Don’t let a few bad tenants ruin your opportunity at building your Real Estate portfolio. There are several things you can do to avoid, or at least minimize problematic tenants and If you follow them I guarantee you will be much more successful than most. Here are few “must do’s” before renting to anyone.
1. Pre-screen and actually meet your tenants – Order a full credit and eviction report on every serious prospect. Simply put this is the best investment you can make. You can pass on the minimal cost to the prospective tenant. There are several sources online to order these. I would try Mrlandlord.com and check some others out as well. Schedule a short one on one meeting with the tenant and make sure they include EVERYONE who will live in the residence.
2. Call previous landlords – This is crucial, get as many references as possible, one is not enough. You need to actually make the calls yourself and speak with these folks. Write down the questions prior to calling so you do not waste their time or yours. Get all the information you can to make your decision and be direct and specific.
3. Visit their previous residence – I know this is not always possible, however I would not rent to anyone unless you do this. I can tell you without question this is by far the most important tip; If the renters are in another state find a way to view their current home. If possible have them take a video or better yet hire an inspector out of state to do it for you.
I have owned several rental properties over the past 10 years and I can now say that when after doing these few things along with the proper paperwork I have not received a late payment since. Be sure everything you do is in writing including requests for repairs. These tips may seem rather obvious but they are not. There may be times that you may be tempted to rent to someone quickly and in the interest of time you may just skip one or two of these. That will prove to be a major mistake. It only takes a little more time to screen your renters and execute a little due diligence, remember you are entrusting a property valued at hundreds of thousands of dollars to a complete stranger. Do the frontend work and your landlord life will be much smoother later on.