Step #5 I got The house...Now What?
Well, the closing that you had anticipated for so long has finally come and went. All of the sweat that had beaded gently above your brow has subsided and the closing package from the title company has been delivered to you...You did it! Yes, you did the thing that you thought was going to wear a proverbial hole through your soul. The fingernails on your hands may or may not have lost some length. The antacids have fully kicked in and the emotions have flooded your soul with a tremendous joyful bliss that is the precursor to the beginning of something that is truly special.
As the fireworks begin to be shot forth into the sky and the applause reigns down from the heavens you think to yourself...Self! Today is the day it all changes. I am going to take this dream of mine to another level. It's only up from here.
Nothing can stop me now. Nothing!
Well hold on there my friends. You haven't won any races yet. You have just hit one small milestone on a very long road. Although at the end of this road paved in gold lay a future that is a heck of a lot brighter. We still need to reel it in for a few and talk about what's next.
Tenants...Do you need one? Or did you already buy a house with one in it? Well, we will have decided all of that before you ever ink your first agreement. I'll never let you fly blind in that regard so let's have a conversation assuming the house is vacant, and you are starting from square one. What are the next steps you ask? Well… Let's get into it.
I highly suggest that without any experience you will have had at least 3 conversations with property managers that I have referred to you prior to you even looking for the first house. So, let's check that box, and assume you have already lined up who will help you place your first tenant.
The procedure for this goes something like this. The property manager will visit and make a punch list of potential repairs that will be needed for you to place a tenant with confidence. Making the house fully ready to rent will be imperative to a fast placement of your new tenant. Or you can choose to manage your rental property on your own. Either way, things will need to be done to make sure the house is ready to rent to the tenant you choose to accept.
Once the house is ready it would be in your best interest to get professional photos taken of the property for the purpose of marketing. The photos will need to be appealing aesthetically as well as showcase all of the house in its entirety. This way when the home is marketed the consumer and/or tenant will see your house and identify it as a house they wouldn't mind taking as their residence. Under the terms of your lease agreement that is.
There is a crucial process that is necessary as you play the market for a potential suitor. Like dating, we need to make sure they check all of the right boxes before we start talking about a future with you as their landlord. There are certain things we need to look for in a tenant. The most important is this...Can they prove to you that they can pay the rent, utilities, and keep the house up in fairly decent condition? Well, they are going to have to...Or the date ends there.
There are many ways to validate a tenant, but the most common way is to have them fill out a tenant application. This application will allow you to take a look at their credit score, credit history, criminal record, and a lot of other key information that will allow you to see if they are the right fit. Property managers have a system for this, or you can use websites like turborenant.com for example to run your own checkup if that's what you decide to do. The tenant also has the option to give references. Especially former landlords...You need to be able to check those. Validate them and always make sure that they are actually real. Property managers are great at this...If you manage for yourself, you better get good at it too.
You will also be asking for proof of employment. Tenants will need to prove to you that they can pay the rent. You will gather paystubs from them to validate that income, or tax returns can be used, or both. Remember, in most cases you are not going to get applicants with 700+ credit scores. So, you need to look at the application and info closely to find out the most important thing that you can know...Can the tenant pay their bills on time?
I like to make sure that any tenant that rents from me has had the same job for at least 24 consecutive months. If they have been promoted or stayed in the same job field to level up, that's ok as well if the work history is over 24 months in the same field of employment. They need to have a credit score over 580. They need to be able to put all of the utilities in their personal name. Lastly, they need to not have a history of violence or sexual related crimes.
One thing to consider. If someone has a past of getting in trouble with the law...If it was only one or two times in their past don’t hold it against them. People make mistakes and learn. People who are screw ups have a constant history proving that. So, in that case, you can see the difference between a bad decision, or a complete history of bad decision making. There is a difference. So have an open mind as you review the information.
Property managers will do all of this for you but take my advice. Tell them you want to see everything too before a tenant is placed or decided on in regard to your own property. Be engaged and involved in your business at all times. Your future success is up to you. Don’t count on others to make sure your life works out...Count on yourself.
Once you find a tenant you deem worthy to rent from you. The next step is signing a lease with them. The tenant will also need to come up with at least 1 full month of rent up front, plus 1.5 months rent as the security deposit. All of this would be due at the lease signing. Generally, the commission to your agent, or property manager would be equal to the first month's rent. So if you are renting for let’s say $1000 per month. The tenant would need $2500 to move in. You as the landlord would get $1500 for the security deposit. Your agent or property manager would get the other $1000 for a job well done for the tenant placement. Security deposits are not income. So be sure to keep that money in escrow and do not spend that money for any reason!
Once the lease is all executed the tenant would be able to get the keys and move in. They need to be provided with copies of all of the documents as well for their own records. Leases protect landlords from tenants. They also protect tenants from landlords. So, keep that in mind...Do things the right way or you'll not like how things turn out.
If you are choosing to rent to a section 8 tenant, I will get into that in the next blog. That is a different process and there are different steps you will need to complete. Don't worry about that though. I got you covered. We will get you on board to be ready for that scenario as well.
At Detroit Buy Hold Invest we want to make sure all of our past, current, and future clients always stay educated. We don't want you out in the world getting caught up in bad decisions made from a lack of knowledge. So stay tuned as we continue these crucial conversations further.