Tenant Screening & Move In Process
Hopefully, at this point in time, you have financed and closed on a rental property. You are off to the races investing in rental real estate. It’s now time to do make ready, if necessary, for move in process and tenant screening. Getting your rental ready for your new tenant is important part of the process. Having a good tenant that pays the rent is what makes this a viable investment. Providing tenant with a good reason to want to stay in your property is why it’s important to ensure the make ready is done properly. Having a great property and thoroughly screening the tenant that will stay there is a step towards success.
Make Ready
Your house has major systems that you should ensure are working as they should as part of the make ready of move in process. Those systems are the HVAC, plumbing, electrical, and structural (roof, siding, foundation, etc.). Hopefully, there is not much work in these areas, but if there is, this is where the money expense should go towards first. The cosmetic fixes are the other piece of the equation but should not be a main focus. These are things like flooring, paint, and finishes. I often get low to medium grade for cosmetic finishes. In investment real estate, once your major systems are covered and you provide nice, but not overpriced, cosmetic finishes in a rental that is clean, safe, and functional, you’re likely to keep a tenant for a long time.
Selecting General Contractor
I am certainly not a general contractor by trade, and you may not be as well. However, you can find help to make sure your make ready is done right. If you are a member of Real Estate Investing Club, there may be a vendor’s list of tradesmen at your disposal for all your make ready needs. If not, online websites like Home Advisor can help. I usually get 3 bids from a general contractor on the work I need done. I then select the middle to high offer because you are more likely to not get a contractor taking short cuts that’ll you’ll find out about later.
Once you’ve selected a general contractor to do the work, ensure the work items are itemized and listed out by materials and labor cost. A lot of banks which do bridge financing ask for breakout like this, so it shouldn’t be a problem for general contractor. If it is though, I probably wouldn’t go with that contractor. What are they trying to hide? I pay half the cost up front to get started and the remaining once the job is through and all itemized items are completed to my satisfaction.
Generating Tenant Interest
If there isn’t any major hazards during make ready, you might plan to show the house to prospective tenants. So that when the house is ready, they can move in right away. I usually start this process by placing a sign for rent in the yard. Then, I place a fairly descriptive ad in the classifieds of local paper. In Houston, there is a newspaper called the Greensheet which plenty of prospective tenants use to look for rental properties. I will run an ad which shows online and print for two weeks at a time to get significant exposure. I get significant traffic from this alone because if you buy properties in areas where people want to live, you’ll get calls.
Property Showing
If you are showing the property yourself, in order not to run yourself ragged, I pick a day and block of time and schedule tenants to come in half hour intervals. I do this so that, one, prospective tenants can see others interest in the property. So that way they are less likely to put off placing an application if they are interested. As they will see there is competition. Show each tenant around giving tour of the bedrooms, bathroom, kitchen, and living spaces indoors and outdoors. Mention any upgrades and amenities that come with the property or community. Also, mention the schools nearby and how they grade. Sell the property as being the best.
Tenant Screening
The selection criteria should list all your criteria for judging suitability for a prospective tenant and be in accordance with any federal, state, and local laws. I used one that comes with membership to Lifestyles Unlimited. This will keep you from violating any housing discrimination laws.
Provide this upfront to prospective tenants via email if they are willing to provide an email, otherwise, have print copies just in case they don’t. If you have worked with an agent, they should have provided comps of the rental sales in the neighborhood. This gives you viable information as to whether its a good property to buy in the first place and realistic expectations of rent in the subject area. So, you list your property at slightly less than market value.
I have been taught wisely to have best property at best price. This few dollars here and there matter to your tenant when they have comparable properties that are just as good or better than yours. If you are just starting out, I usually list my own property for lease because an agent will charge one month’s rent. Depending on your situation this may be feasible. Use your better judgement, but be sure you are attuned to be a part of tenant screening process It could mean the difference between a five year tenant and 6 month one.
Viewing Applications
Now, you have a stack of applicants to run through. Using the selection criteria, I sort the stack by the applicant strength in the selection criteria. I will run the applicants in that order and I will go through the applications. If the first applicant passes with no red flags after third party verification by National Tenant Network, I stop and call and see if they are ready to put down 1st month’s rent and security deposit (matches 1 month rent). If so, I don’t proceed with the other applications. Some landlords would not return the applicants money, but I would if they pay additional cost for stamp and envelope. People work hard for their money and no use in me taking it if I don’t utilize to ends of evaluating them.
When To Charge Double Security Deposit
A person in stack that throws a red flag, would require I charge double deposit or has outstanding issues with previous landlord that I cannot verify will result in me going to the next applicant. If you have gone through all applicants and no new applicants, then look to sort status by best to worse in the group and up the ante as far as security deposit. Eliminate any that lied on application. If they meet income, employment, verifiable rental history and credit history just consider the higher security deposit (2 month’s rent). If the prospect tenant agrees to those terms, move forward with the move in process. The rental sign and ad is not to be removed until you’ve received 1st month’s and security deposit in full. This should be within 2 days of approval and signing the lease.
Moving In
Once this process is completed, any lock box, sign, and ad can be removed or discontinued. The keys should be handed over to tenant ensuring to keep a set for yourself in case of emergency. The tenant should sign a blank inventory checklist and condition form. They have 7 days to return to return a second copy, but if it isn’t the blank one becomes record. It is deemed the condition of the property is acceptable as is.
Signing Lease
I typically sign 1 year lease but could be as much as 2. I don’t go over so as to go up on rent when comps have gone up. Here are some important touch-points to cover in the lease:
- The tenant is responsible for 1st $100 of repairs that are not explicitly the landlord responsibility
- When rent is due and what the penalties are for lateness
- Who is responsible for the lawn care and maintenance
- Who is emergency contact
- The proper people living on the premises are on the lease
- Method of payment
- Who to contact for repair request
- Tenant responsibility to carry renter’s insurance
Then comes the period of live and let live where you let your tenant make this their home. I would do temporary drive by to ensure yard maintenance. Maybe every 6 months do a walk thru of property and ask the tenant of any problems and/or concerns so you don’t get surprised by some damage to house due to tenant negligence and/or avoidance to pay that initial $100. Be ready and willing to be responsive to valid tenant concerns especially when it comes to cleanliness, safety, and functionality. More on property management topics in the next post of this series.
In Closing
You made it through the steps to screen and move in a qualified tenant. They have paid the rent and security deposit and now what’s next is to see that they continue the next month is same follow through to pay rent on time every month and take of the property for the term of the lease. If you have done your job, as mentioned above, it’s fairly good chance you can count on it being like clockwork as it’s expensive to move for tenants and costly for you to have to repeat this process too frequently. This has been working for me and I have been landlord since 2011.
