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Rental Property Advice from 26 Experts

Here’s a great article compiling rental property advice from 26 expert investors and professionals.

Get Rental Property Advice from 26 Expert Real Estate Investors

Lot’s of great info here for every stage of your investing career. If you are frustrated or tired of managing your investment property there is great advice here to help you get to the next stage.

If you are just getting started with real estate investment, there are great tips to set you on the right path.

Be sure to scroll down to find my contribution.

 

Use a Tenant Screening Worksheet to Improve Tenant Selection

Tenant selection is critical to a profitable investment property, and the best way for Landlords to improve their screening process is to develop and utilize a written tenant screening worksheet. A written tenant screening worksheet is a simple but powerful tool that landlords can use to document their criteria and improve their tenant selection process.

Written screening criteria will:

  • Save you time — by pre-screening tenants before showings.
  • Keep your decisions objective — tenants either do or do not meet the criteria
  • Guide you to the best possible candidate for your vacancy.

Most real estate investors have heard the story of a landlord who made an exception to their rules and were stuck with a difficult or non-paying tenant and months of lost rent during the eviction process. A tenant screening worksheet forces you to document the findings of your screening process and objectively compare them to your criteria.

The following criteria serve as the backbone of my tenant screening worksheet:

  • Income is 3X Rent Payment or greater.
  • No Evictions. Period.
  • Positive Landlord References.
  • No Felonies or violent criminal history.

VERY IMPORTANT NOTE: Your tenant screening criteria CANNOT include questions about or discriminate against tenants on the basis of race, color, national origin, sex, familial status, or handicap. Doing so would be both morally wrong, and a violation of Federal Fair Housing laws.

In addition, State Fair Housing laws may include protections based on marital status, sexual orientation, gender identity, age, or participation in the Section 8 program. Be sure to conduct a Google search to understand your state laws.

Once you develop your written criteria, be sure to utilize it for every potential tenant and retain the worksheet for your records. Share your criteria on the first phone call with a potential tenant to avoid showing your property to tenants who cannot afford your unit or are otherwise disqualified by your criteria.

Lastly, if you utilized a consumer report (credit or criminal background check) in your application process, be sure to understand your obligation to issue an Adverse Action Notice, and maintain copies of both your screening criteria worksheet and the adverse action notice for your records.

Good screening criteria and background checks cannot predict the future, but they are very effective at guiding your screening process towards the best possible tenant for your property.

The Adverse Action Notice: A Landlord’s Guide

Tenant screening is a make-or-break moment for landlords. Much time and effort is invested to market a vacant unit, and selecting a tenant that will be considerate, responsible and reliable is not an easy task. Fortunately, technology now allows landlords to quickly and affordably obtain high-quality information on a potential tenant’s credit, background and rental history. A good background check and credit report brings transparency and hard-facts to the tenant selection process; but with greater knowledge comes greater responsibility.

Landlords who utilize consumer reports are subject to the Fair Credit Reporting Act (“FCRA”), which was designed to protect consumer privacy and guarantee the accuracy of information provided by reporting agencies. Failure to comply with FCRA could result in a lawsuit by a potential tenant who feel they have been unjustly penalized by their consumer report. Further, state and federal agencies can also bring civil penalties for abuses of the FCRA.

While there are some legal protections for landlords in isolated incidences, with stakes this high it pays to know the rules and document your compliance.

The key provision of the FCRA that landlords MUST understand is the Adverse Action.

An Adverse Action is any action taken by a landlord, which is unfavorable to the applicants’ interest. An adverse action could take many forms:

Examples of Adverse Actions

  • Denial of the application
  • Additional security deposit charges
  • Pre-paid rent requirements
  • Requiring a co-signer on the lease

If a landlord takes any adverse action against a rental applicant based, in whole or in part (even a small part), on the information obtained from the consumer report, the FCRA REQUIRES that the landlord provide the applicant with an Adverse Action Notice.

Many reporting agencies provide form adverse action notices that comply with FCRA guidelines; check with your provider first. At a minimum, the adverse action notice must include:

  • The name, address, and telephone number of the agency that provided the report.
  • A statement that the agency did not make the decision to take the adverse action and cannot give the specific reason for it.
  • A notice of the applicant’s right to dispute the accuracy of the information provided by the agency and the applicant’s right to receive a free report from the agency upon request within 60 days.

For the landlord’s protection, the notice should be provided in writing and a copy maintained denoting the date it was delivered to the applicant.

Maintaining written documentation of your tenant screening criteria and adverse action notices are critical steps in a professional tenant screening process and will help every landlord avoid unjustified legal claims from dissatisfied applicants.

In addition, the adverse action notice allows landlords the opportunity to help improve the consumer reports we rely on, by giving applicants the ability to correct inaccurate information on their reports.

For more information on the FCRA and Adverse Actions Notices, visit the Bureau of Consumer Protection website.

Note: I am NOT an attorney and this article should not be construed as legal advice. The FCRA is a complex subject and this article is NOT intended to serve as a comprehensive outline of the law or compliance therewith. If you have questions regarding the FCRA or are facing legal action, please seek the counsel of an attorney.

One Key Concept for Hiring a Property Manager

Hiring a property manager for your investment property is an exciting step. You’ll now be a true investor: collecting the profits, monitoring the performance of your manager, and focusing on expanding your portfolio. With all of the benefits that come with outsourcing your property management, identifying the right manager is critical.

There are many lists which cover the best questions to ask when interviewing a property manager, and these lists are sufficient to help establish a candidate’s baseline knowledge and experience. But I believe there is one key concept that fosters a successful relationship between property manager and owner, the concept of Alignment of Interests.

When selecting a manager to handle your investment properties, you are trying to solve the problem of Agency Theory; the concern that you and your manager may have different risk tolerances, experiences, and/or quality standards, which may result in your manager taking an action which is not to your satisfaction or in your best interest. Agency Theory is a highly researched subject across the financial sector.

The commonly accepted solution to Agency Theory is a well defined Alignment of Interests between the investor and the manager.

In terms of property management, we are seeking to align the compensation of the manager with maximizing your profit. While determining alignment of interests is not an exact science, it is important that you, as an owner/investor, consider how closely aligned your property manager is with your interests.

Below are a few questions that will help determine alignment of interests:

  1. Are management fees based on the service provided or a percentage of your property’s rentable value? If percentage based, does your manager provide greater service to units where they are collecting higher fees?
  2. Are additional fees collected for leasing vacant units? Does this encourage tenant retention or turnover; to your benefit or detriment?
  3. Are there additional charges for maintenance oversight? Do these charges vary with the cost of repairs? Do they incentive the manager to minimize or maximize repair costs?
  4. Generally is your manager best served by maximizing your rent collections and minimizing maintenance problems, or does your manager profit from turmoil?

There are no right or wrong answers to these questions, but they help frame the concept of alignment of interests. It’s best to consider them on a scale of 1-10, with 1 being not aligned with your interest and 10 being maximally aligned with your interest.

Many factors influence a successful owner/manager relationship, but generally, the relationship has a higher chance of success, and profit, if an owner feels that, more often than not, the manager’s interests are consistent with his/her own.