My First Rental
Hello All,
I have just purchased a rental with a partner for 89k that we believe will bring $950 a month based on comps. Please forgive my ignorance, but I am very new at this. Could someone lead me to a good lease contract? How do you help ensure timely payments?
We plan on just advertising the place to obtain the tenants. Of course we will perform a credit check and ensure they have a current job.
If anyone has any good advice for a rookie, please reply. I have really enjoyed this site for the past couple of months.
Derek
I have a system down pretty good. Send me your email and I'll send you my procedures and agreements. I use researchinc.net to check credit and criminal background. shims@sheean.com
Quote:Could someone lead me to a good lease contract? How do you help ensure timely payments?
We plan on just advertising the place to obtain the tenants. Of course we will perform a credit check and ensure they have a current job. Derek,
Check the freebies area on this site for a sample lease. MrLandlord.com also has a sample lease in their download area. These forms are SAMPLES only and not intended as a substitute for legal advice. If you choose to download a lease agreement from a website, you should have a lawyer review the form to ensure that it complies with your local landlord-tenant laws.
You can never "ensure" timely payments. You can hope that your applicant screening reduces the probability that you will rent to a chronically late or non-paying tenant. Check with prior landlords for your applicant's payment history. Look for late pays on the credit report. If the applicant discloses their income, compute the percentage of income consumed by the rent. If the rent takes more than 40% of the applicants income, this may be an indicator of a tenant with a future cash flow crisis. Ask a local property management company what screening criteria they would use if you were to place your property under rental management. You may get some other ideas.
DaveT is correct. You cant ensure timely payments with the contract. The contract will however stipulate the actions to be taken when payments are not on time. Check your clauses in the contract.
Azsaluki
DaveT is correct. You can only take steps to help avoid this problem.
There is only one proven rent collection policy and procedure!
The tried and proven rent collection policy is that the tenant pays the rent on the day it is due, in the amount and in the form specified by the rental agreement.
You have to decide, in advance of renting the property out, how, when, where, and in what form you want the rent to be paid and put it in your contract. That is the policy.
My lease states that rent is due and payable on the 1st of each month. This means that rent is late and delinquent on the 2nd if not paid
I charge a 7% late fee if not paid by the 1st - I also give a discount if rent is paid before the 1st in the amount of 2%
If, for some reason, the policy is not followed, then go through the steps to evict.
As to what, exactly, the specific components of that policy might be, that will vary with the circumstances of each individual landlord, his past dealings with other tenants, and the individual circumstances and financial condition of the tenant. Most rent collection problems do not arise because the collection policy is bad, but because it is not followed. So follow and enforce any policy you decide upon.
The Important Legal Concept to Remember: Renters must pay rent; nonpayment is rarely excused.
The sprit of the law allows landlords to charge a fee for a late rent payment. Fees for late rent are perfectly legal, although excessive fees are not. What is “excessive”? That is a good question without a definitive answer. There are few laws that actually regulate the amount a landlord can charge for late rent. While $50 may be legal, $150 may not be.
Example:
Rent/lease for $750 (Pay on time - Pay only $735) Discount for paying on time.
The kicker is if there late I charge a late fee of 7% of the original agreed rent for a total of $802.50.
This is all agreed to in wrighting and has been very effective in over 98% of rents being on time.
[addsig]
Thanks for the excellent suggestions!! You guys really know your stuff. I love the idea of giving the tenant a small discount for early payment and a penalty for late pmt.
John, How many houses do you have and how long did it take to acquire them? If you don't mind me asking. My plan is to have 10 houses in 5 years using the conventional purchase method.
hims, I will definately email you for your system. I live in Phoenix so I am not sure our States are compatible. I will check with either an attorney or other landlords in this state.
I just saw an article in the Arizona Republic about how the rental market is shrinking. It appears that anyone with a heartbeat and $200 in their pocket can qualify for a loan these days. This really makes renting less attractive for many people. Has anyone felt the effects of this theory?
In Washingon State rent is due on or before the 1st. You can't charge a late fee however until after the 5th! Strange in my opinion. You can send them a late notice on the second but can't charge a late fee until rent is late past the 5th, effectively making rent due, in the mind of some tenants, on the fifth. Yes, a good strategy is to set your rents a little higher and tell your tenants that you will reward them with "discount rent" if paid on or before the 1st. You can make the lease say that rent is $725 when actually you want $700. You tell them they get a $25 discount if they pay on time. If they pay on the second it's $725. If they pay on the 6th, you add another later fee of $25 making total due of $750. Discount rent is a good incentive. You'll get your $700 in on time usually.
Azsaluki,
Well I will not give the exact numbers, but I will tell you I personally own no property, but I own several companies, trust and so on that own real estate. Let's say it's just a better tax advantage.
Hint! Hint!
Your goal of just 2 units a year is vary reasonable. I have been investing since the 80's so one or two deals have come my way. The first 5 years where the most difficult (I call it the learning curve years) but when I moved from California to Missouri I went investing nuts and now do deals in many states.
You should really join an REI club and landlord association in your are. It will be the best step you could take.
The article on the shrinking rental market, don't give to much merit to it. Folks will always need a home. Foreclosures are at their highest rate ever. Think about this they loose their home now they have to rent.
The biggest marketer of foreclosures is first Preston; they are going from city to city speaking with realtors and investors through the US, as a matter of fact they are renting from a conference center that I am a part of. I say this because they are getting ready to dump ton's of REO's on the market with more to come. These folks have to live somewhere.
Rentals will always be a great investment of bought correctly.
[addsig]
I hope you are right about the rental market. One of the first things the investing books were teaching me is that you must find opportunities in every situation the market brings you.
I am in the process of obtaining a LLC to protect my individual assets. To do this, I purchased the services of Robert Shapiro, who started LegalZoom.com. I found this to be pretty expensive $400. I know you can do this under $100 without help. What are other people doing to incorporate? Any comments would be appreciated.
Hey, I am from phoenix as well! I am going to take a different route than the folks above. This has worked very well with me and my rentals. First, we never pay top dollar. All of our rentals came from shortsales. Next, they need to be relatively close to an elementary school. We will only rent to families with small children and we love to see bankruptcies and bad credit, especially those caused by medical bills. This means they won't qualify to buy a home for quite some time. Next, arrange your rents to be at least 800 but no more than 1200. With these parameters, the tenants set down roots which is why we have not had a single turnover in 3 years. This is not luck, it's just very good prior planning. I would like to meet you. I am in the new river area.
casavista,
I would really like to hear more about your strategies. As the title of this post explains, I'm new to this and I'm learning as I go for the most part.
I live in the NW valley. Here is my email so we can arrange a meeting sometime.
Dedrealestate@cox.net
beg
good screening
prayer
and treat with respect