Latest / Cash Flow for Life / Chapter 18: It’s Yours: Rental Property Legal Move-In and Move-Out
Transcript
- 00;00;00;02 - 00;00;26;03 Chapter 18. It's yours. Rental property. Legal. Move in and move out. There is no reason that you can't be a great landlord. From both your perspective and your tenants perspective. Being a great landlord from your tenants perspective involves taking care of the property and responding to their issues. Think about this as providing both a product and a service for your customer. 00;00;26;05 - 00;00;54;26 From your perspective, it's getting the rent paid on time. Keeping vacancy and credit losses to a minimum and minimizing damage and repair costs. While very few concerned landlords have trouble taking care of their tenants. They tend to have problems taking care of their landlord and ownership needs. The problems begin with landlords wanting to be nice and trusting, so they don't complete the paperwork and conduct the proper due diligence up front. 00;00;54;28 - 00;01;25;27 Accepting a tenant on a handshake with a gut feeling that they're okay can work some of the time, but it's not going to work all of the time. The tenant application form. You should have a thorough tenant application form that allows you to get a great deal of information from them before any decisions are made. Using the information on the form, you should check their credit, call their rental references, and verify previous addresses and rental history information. 00;01;26;00 - 00;01;56;01 Only asking them a few questions verbally. Can result in a lot of regret on your part. The application, at a minimum should have the following full names of applicants. If two unrelated people are to be tenants, get a full application from each of them. Previous residence history back 3 to 5 years. Contact information for other family rental. References. 00;01;56;03 - 00;02;20;29 Employment and income information. Ask for their most recent three pay stubs from work. Photo ID to keep on file. We usually keep a copy of both sides of their driver's license. If you're working with a leasing agent, the leasing agent will have an application form and they will collect the information that is needed in your province or state. 00;02;21;01 - 00;02;47;18 Research laws on privacy, civil rights and your areas. Landlord tenant regulations to be sure that you don't include questions that are illegal to ask. This could include family and lifestyle questions and others. Discrimination complaints are not something you want to deal with and not something you want to be involved with. In general, you can start with an application form marketed as legal for your state or province. 00;02;47;21 - 00;03;12;12 A Google search for state provincial legal tenant application turns up a number of sites where you can get a form advertised as legal for each of your state or province. However, don't just take the internet's word for it that this is a legal form. Please, if you're unsure, always get it reviewed by your attorney or lawyer. Your attorney may even want to add items to the application. 00;03;12;15 - 00;03;39;24 There are certain disclosures and other requirements for tenant and landlord agreements. Always check with a lawyer or attorney when creating contracts and agreements. This can seem pretty complex, but it's something that you need to do right? And you only need to get it together once. Set up your forms and interview process before you find your first prospective tenant, and you'll find that it will become second nature over time. 00;03;39;26 - 00;04;10;16 It's an investment worth making. Some people don't enjoy calling employers and references, but it's something that you need to do. No matter how uncomfortable you are checking tenants out this way, you'll find it a lot more uncomfortable evicting them. You may be able to use a tenant screening company specializing in this process. You may find the company's fee acceptable in return for getting all of these references, employment and credit check items done for you. 00;04;10;19 - 00;04;38;24 About credit scores. One U.S. study found that as many as one third of U.S. residents had credit scores that would probably not be high enough to easily qualify for a conventional mortgage. While this sounds great for landlords because it leads to a large supply of renters. How do you decide what score is acceptable? You can have an absolute bottom line for credit score, and a range that causes you to be more selective if you have multiple applicants. 00;04;38;26 - 00;05;07;15 However, some people who have been through rough financial times and have less than stellar credit scores may be great and reliable tenants. Some who have excellent credit scores can turn out to be real problems. You do your best, but sometimes life just gives us challenges. If you want to move beyond credit scores, you can go to verify. We really like the way they uniquely qualified tenants with a unique process that gives you a good view. 00;05;07;18 - 00;05;35;08 If that tenant might be good for your property calling, rental and employment references, call previous landlords and ask for more information than just is the tenant renting from them. Ask questions about their behavior. Rental payment history. Attention to rules and treatment of the rental property. Always make sure you don't ask questions that would be discriminatory. Did they always pay their rent on time? 00;05;35;11 - 00;05;57;22 Did they ever have pets? Did they get along with each other? Tenant. Did you ever have any problems with them? Is there anything else I should know? Most landlords will share this type of information with you, because they would appreciate the same consideration if they were calling you. With landlords, I like to call not just the current landlord. 00;05;57;23 - 00;06;18;01 I like to call the landlord before the current landlord. If the tenant is a problem, the current landlord might sort of skew their answers in order to get the tenant out of their property and into yours. So if you call the landlord that the tenant is not currently living in their property, you're going to get some really honest and really straight up answers. 00;06;18;03 - 00;06;43;14 As for employers, past and present, you should have a prepared list of questions and a form to record their answers for your files. You want to ask questions to give you insight into the prospective tenants past, present, and future. For example, how long has he or she worked at the company or if it's a previous employer? How long did he or she work there? 00;06;43;17 - 00;07;15;02 Is his or her current job secure, and does he or she have a reasonable prospect of ongoing employment? Is he or she generally a good employee? Can you describe his or her character? Can you confirm the income indicated on the rental application? And is it a salary, an hourly wage or compensation based on commission? You may not get all of these questions answered by an employer, because some people may be concerned about legal liability. 00;07;15;08 - 00;07;27;28 But be sure to ask them. And always make sure that your questions do not break any discrimination or human rights laws. You always want to be legal and on side. 00;07;28;01 - 00;07;53;11 Qualifying students as tenants. The process of qualifying students as good tenants can be a little tricky when attending school. Many tenants will not have a steady employment or they may not work at all. They may be attending school on scholarship or grants, or their parents may be giving them financial assistance or the government. Frequently, income can be a combination of sources. 00;07;53;13 - 00;08;14;29 Always check with parents. Checking with students parents is critical because they will likely be candid about their child's ability to make rent. Parents know that they will probably be called upon to bail out their child in a pinch. They want to make sure that their child has a roof over his or her head, so they will be a good backup if a check bounces or the rent is late. 00;08;15;01 - 00;08;19;13 Develop a good relationship with the parents. 00;08;19;16 - 00;08;45;02 You should call the parents as part of the process, and try to get them to sign as a guarantor for the rent. This is the best case scenario, because you now have signatures for two people who are promising to pay the rent and honor the lease terms. A call to the parents is usually appreciated, and they can give you insights as to whether the child should be taking on the rent that you'll be charging them. 00;08;45;04 - 00;09;12;05 Roommates with students. It's frequent to have roommate renters, with 4 to 6 being a common number. That's how we were living as college students when we had that moment. That's how we rented out the first home that we purchased. It's not a situation to fear, but there are special considerations when dealing with a group. We usually try to contact at least one parent from each of the roommates. 00;09;12;08 - 00;09;34;24 Using email, we inform them of the lease terms and trying to get some response back. The students sign the lease as a group, but each is individually bound by these lease terms and is responsible for his or her portion of the rent. Now, in some provinces or states, it might make sense for each individual student to sign their own individual lease. 00;09;34;26 - 00;09;45;01 This is where your legal due diligence and check comes in with your lawyer or attorney. Do what's right and what makes sense in your state or province. 00;09;45;03 - 00;10;04;22 If one roommate decides to move out, she will be held responsible for her lease. So you want to make it clear to her that she should be looking for a replacement to relieve her of responsibility? Depending on the law where you rent out the property, you may be able to require as much as 60 to 90 days notice if one tenant is leaving. 00;10;04;24 - 00;10;24;28 This gives a tenant and you time to look for someone to take that place. There is also an incentive for the other roommates to find someone to fill the vacancy. Let them know that you're looking for someone. They have a choice of finding someone that they like and can live with. Or the alternative is you're going to have to find a stranger to fill the spot. 00;10;25;01 - 00;10;50;12 And they often don't want that. Everyone has a line interest and incentive to find the right person. The lease agreement. The same legal considerations apply to the lease agreement as to the rental application. Even more care should be taken to adopt a lease agreement that meets all legal requirements and protects your interests and your investment. This is a legal contract, so everything should be in writing. 00;10;50;14 - 00;11;18;13 Don't make up this contract yourself. Make sure you get a proper legal lease agreement. Deposits and payments. The lease must clearly set out the terms of rent, payment amounts, due dates, and any penalties that you can legally charge the tenant if the rent is late. Make sure that tenants understand what constitutes late rent and that they know what's going to happen if they are late with their payments. 00;11;18;15 - 00;11;41;11 It should specify your procedure and the penalties you can assess for bounced checks as well. We want the first and last month's rent in advance, and we record that we've received this money right on the lease itself, making it the receipt for the tenant. We also require the full legal amount that we can charge as a damage deposit. 00;11;41;13 - 00;12;10;23 Check your area's laws on this. We want the tenant to have an incentive to leave the place in good condition. The lease should be very explicit as to how the cost of damages will be determined. There's no getting around the fact that pets bring damage concerns. However, not allowing pets can significantly reduce your pool of available tenants. You may want to limit the type and size of pets if you allow them at all. 00;12;10;25 - 00;12;32;14 Check your local law and charge extra rent if allowed. Increase the damage deposit as well if you're allowed. Make sure you check your local laws because in some places you cannot prevent pets and in some places you can have the choice. Also, follow the law. When you determine how long after, move out before you'll send them a damage deposit. 00;12;32;14 - 00;12;57;24 Money owed. Some lease agreements have spaces for initials next to all of these important money related items. It helps to show that they were pointed out specifically to the tenant. In the case of a disagreement, other lease terms. When we sit down to sign the lease, we set the tone during this half hour or so for our entire future relationship with the tenant. 00;12;57;26 - 00;13;22;05 We want to be friendly, but we also want to make sure the tenant understands the terms of the lease and knows that we're serious about enforcing them. Even though you can download free lease agreements and free legal documents online, or you can buy them from your local office supply store, we always recommend that you have legal documents prepared or reviewed by your qualified lawyer or attorney. 00;13;22;07 - 00;13;46;04 If it's not clearly specified in the lease, we make sure that we add clauses that state that the landlord is not responsible for loss or damage to tenant property. Tenants are advised to obtain their own renters insurance on their personal belongings. Signing the lease. You want to set a professional tone, but not an intimidating one when signing the lease. 00;13;46;07 - 00;14;07;08 You don't need to sign the lease in your attorneys boardroom. However, you probably don't want to sign at the local bar over a couple beers either. It's okay to meet at your office or even a local coffee shop if you don't have an office. But be careful it doesn't just seem like a couple of friends getting together. Get organized. 00;14;07;10 - 00;14;27;22 A time will come when you have so many tenants that you can't remember all their names and information without recording it. It is very important that when you grow to this size, you stay very well organized. Whether you have three tenants or 300, you should have all of their important information recorded in one place. 00;14;27;24 - 00;14;58;04 Move in. It's move in day and the tenants will be expecting a clean unit in good repair. You will have had repair and cleaning people in the unit and everything should be in good order. However, things sometimes get missed and your movement inspection should be very thorough and documented. At this time, you've received the first and last month's rent, but you may want to wait to take the security deposit until this inspection is complete. 00;14;58;06 - 00;15;23;02 You will want a very thorough checklist of items, and this inspection can take 45 minutes to an hour. Your tenants will agree to have damage repairs paid for out of their damage deposit, so you'll want to be certain that all existing damages recorded to ensure that they're treated fairly. When it comes time to move out, the tenants will sign off on all existing damage, basically saying that there is no additional damage. 00;15;23;04 - 00;15;45;11 So any additional damage at the time of move out will be on the tenants responsibility. All furnishings should be out of the unit, or at least pulled into the middle of the room, so that all of the floors and lower wall areas can be seen. You're looking for anything that you would consider being a problem when they move out from picture hanger holes to a loose handle on the refrigerator. 00;15;45;18 - 00;16;01;17 Everything should be recorded. The checklist should be signed by both you and the tenants. And the same checklist should be used for both. Move in and move out so that conditions are seen right next to each other on the form. 00;16;01;19 - 00;16;23;26 You'll be noting any problems, no matter how small, because this will make it clear to tenants that you're serious about the condition, issues and damage. They'll feel better knowing that you want to make the unit ideal for them at moving. You'll want a statement on the checklist or in the lease that says you'll take care of the items noted on the move and checklist within a certain period of time. 00;16;23;28 - 00;16;49;19 You now have a list of repairs. Get your handyman or handy person to come in and fix these. Same day moving vacancy costs money. So we always try to set up our move ins immediately when the unit is vacant. Bringing in people to clean and repair items while tenants are moving out. We also have moved almost all of our leases to begin on the same day. 00;16;49;21 - 00;17;14;08 While this may seem odd, think about it. We have cleaning and repair people notified and scheduled well in advance, and even rent trucks and dumpsters for this day. It creates a massive efficiency when you can do everything in one day with our student rentals. We found that May 1st was the right day. This was the perfect balance between the old tenants moving out and the new tenants moving in. 00;17;14;10 - 00;17;36;09 Based on the school year, by having all of our student tenants move in and move out on the same day, we can keep our crews busy knowing that it won't be a problem of having very little to do because they can move on to the next project immediately. We enjoy the economies of scale this way because the crews are moving from unit to unit. 00;17;36;15 - 00;18;02;17 They are more efficient because we do a lot of student leasing. We like the May 1st date for students. If we can fill the unit, then with a year long lease, we're in good shape for the entire school year. If not, we get another shot in September. However, if we use September 1st regularly, we might end up with empty units over the summer period. 00;18;02;20 - 00;18;23;14 Utility service transfers. The lease should be explicit about the responsibility of tenants to connect and disconnect their utilities, and have them in the right name for the period of their lease. Tenants moving out who don't do this could leave you with the liability of having to pay utilities from their move out, until the new tenants put them in their name. 00;18;23;17 - 00;18;46;08 Give them written instructions and phone numbers of who to call to change over utilities. Follow up with them to be sure that it's done. And of course, if you include utilities in your rent, you don't have to worry about utility service transfers. You'll just cover the bill the entire time, and the cost of utilities will be built in to your rental costs. 00;18;46;10 - 00;19;09;20 Move out. We'll talk a bit about forced move out and eviction later. Right now we're addressing the normal end of lease. Move out at some point after or very near the removal of all furniture. Do the required walk through inspection of the unit with the tenant. Do it just as thoroughly as the move in inspection and use the same move. 00;19;09;20 - 00;19;32;02 An inspection form that noted the problems at moving. The tenants need to be there to see what you see and what you have written down, because you'll want them to sign the inspection checklist when it's complete. You want to be fair to your tenants, but you also want to document any items that you consider damage and for what they're responsible to pay for. 00;19;32;05 - 00;20;08;08 You'll be paying for the repairs out of their deposit. Make sure you have a forwarding address for your tenants, because you'll need to mail them a check for any returnable deposit money. It's also just a good idea in case of other issues. Action steps one. Research and adopt checklist and lease forms for your area. Two. Develop clause and lease agreement additions for any specific properties and for general items such as behavior and rules for occupancy and rent payments. 00;20;08;11 - 00;20;31;18 Three. Check to make sure you're legal and run things by your attorney. If you're not sure what's next. We'll go through the everyday issues and requirements for management of rental units and tenant relations. There will be information about dealing with problem tenants, as well as general costs and challenges of rental property management.