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Owners Who Decide to Rent Should Follow These Guidelines - 2008-03-02 |
When an owner decides to rent his home to a tenant, he is essentially handing over possession of an extremely expensive asset to someone who is, in most cases, almost a total stranger. And because the asset is so valuable, it's smart for landlords to take whatever steps they can to protect both themselves and the houses they will get back at the end of the lease.
I recently attended a conference of landlords that were trying to keep their properties full and get their rents in the bank. Here are some of the recommended practices from that program:
* Know your applicant.
One of the techniques that scammers use to move into a community is to steal someone else's credit and identity to rent a home. And unless you require photo identification from a trusted government agency, you really have no idea if the person handing you an application is actually who they claim to be.
The "proof of identity" procedure has long been a staple of real estate closings, where the closing attorney asks all borrowers for drivers licenses or passports, but asking for ID is a new twist in rentals. By photocopying the front of a drivers license, you not only have reasonable proof of identity, but you have information from the license itself that may help a collector find these folks later - if they should need to do so.
* Screen your applicant thoroughly.
Confirm your applicants employment by calling the main number for the company and asking for personnel. This way you avoid the trap of having the applicant provide you a phony number answered by his best friend. In addition, you should check with the current landlord to make sure your applicant has paid rent on time and given proper notice.
One additional tip: check references with landlords farther back than the applicants current residence. The current landlord may be so anxious to see him leave, he may be tempted to give you a sugar coated recommendation just to get rid of his problem.
* Examine your applicant's credit report.
In the past year, Congress enacted legislation to make it more difficult for identity thieves to steal your credit. That's a good goal, but as a result, it is now impossible for small landlords to obtain credit histories they need. This is the case, even though the applicant has signed a form giving the landlord permission to see the report.
But there is a way around this dilemma.
First, meet with your prospective tenant in any location featuring a wireless internet connection, such as a Starbucks or a McDonald's. Bring your notebook computer with a wireless network adapter. Browse on the internet to annualcreditreport.com, and then you can then require your applicant to enter the information necessary to obtain his free credit report immediately.
When combined with a requirement for positive identification, this method insures that you receive an up-to-date and accurate credit history. In the event that your applicant has already used up his free access this year, you can obtain the same info from each of the three major national bureaus for about ten bucks apiece.
And remember that this process needs to be repeated for each adult who will be living at your house.
* Follow the Lead-Based Paint rules for landlords.
If your house was built before 1978, federal law now requires all landlords to disclose known lead hazards to prospective tenants and provide them with a booklet entitled "Protect Your Family from Lead In Your Home."
Both the booklet and the disclosure form can be downloaded from my website at money99.com. Click on Written Resources, Free Documents, then Downloads.
One of the best pieces of advice I heard at this conference was this admonition to landlords: Do not try to explain lead-based paint hazards. It is a complex subject best left to experts, and no one can know for sure if a lead hazard exists unless it is tested professionally.
If a tenant asks for additional information about lead hazards, it is best to refer them to the National Lead Information Center at 1-800-424-LEAD.
* Observe Smoke Detector requirements for landlords.
Georgia law requires landlords to have and maintain a working smoke detector on every habitable level of the dwelling being rented. This is one area where you don't want to make a mistake.
Landlords should be careful to instruct the resident on how to check the units weekly for proper operation, and should physically demonstrate the unit to the resident during the move-in inspection of the property.
* Accept a Security Deposit only After the Move In Inspection
Most landlords do this backwards. You should get a check for earnest money equal to one month's rent with the application. If the application is accepted, use the earnest money as the first month's rent. Then accept the security deposit only after you have given the tenant a copy of the move-in inspection list of damages.
Failure to follow this procedure exactly can work to prevent the landlord from being able to retain any portion of the security deposit, regardless of damages to the property. This is the law in Georgia.
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In all the years I have been investing in real estate, I have never seen opportunity like this. The moon is in the seventh house and Jupiter is aligned with Mars, and for the next 12 to 18 months, you have a window of opportunity to buy quality investment houses at discounts that were simply unheard of a couple of years back.
Come meet with me at one (or more!) of four locations in May:
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The Real Estate Investors Institute will be held at Emory University on May 17, 18 & 19, 2008. You may read about it and register online under the "Seminars" banner.
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