Property Management Kit For Dummies

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.
111 River St.
Hoboken, NJ 07030-5774
www.wiley.com
Copyright © 2008 by Wiley Publishing, Inc., Indianapolis, Indiana
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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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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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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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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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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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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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
W
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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2
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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3
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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4
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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5
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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6
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 . . .
M
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
Y
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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10
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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11
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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12
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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20
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
C
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
T
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
S
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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56
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 . . .
T
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
Y
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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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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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
B
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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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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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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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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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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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
M
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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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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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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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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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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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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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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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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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
1
/4-,
1
/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
1
/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
1
/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
I
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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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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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
T
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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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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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
th
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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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.