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If you own a home or rent an apartment, you may be able to relate to having a neighbor that is anything but neighborly.
When I financed my home 11+ years ago, it was part of a new development in a growing city.
This was the place to be.
Don’t get me wrong, it still is.
At the time, what I did not consider was what it would attract.
Real estate investors.
The houses in my neighborhood can easily be rented out to turn a good profit.
That’s a good thing for investors, but not for homeowners, per se. » ie. ME.
That being said, this has turned out to be a real headache for my household’s living situation for the past couple of years.
You’ll learn all about it today.
I will be providing real-life accounts of neighboring tenant fiascos. Also, through this process, I compiled a list for mitigating the risk of placing tenants that I will share. (I have learned it’s very necessary)
Let’s get to it!
The House To The North
Early on, the house to the north (as my husband and I call it) had a sweet couple that lived there who never caused any issues. They were SO quiet that it never occurred to me that they had vacated the property.
Let’s just say I miss this couple and the decency they had, as they were replaced back to back with a couple of tenants that didn’t quite make a good impression…
Never in my wildest dreams did I imagine that I would have to endure the behavior that occurred almost 2 years ago when a family moved in next door.
They had a very, very bad dog. It would bark and bark to no avail. Mornings, afternoons, in the middle of the night. You name it.
If you have ever dealt with a barking dog that you do not have control over, it is enough to drive you bonkers.
I considered whether the tenants were hearing impaired OR just ill-mannered for not reprimanding their dog for its annoying habit.
Not only that, the dog was vicious.
Every single time my husband ventured to the backyard the dog would ram the fence like it was ready for blood.
It got to the point I had him take protective precautions in case the fence gave way and a maddened dog were to overpower him. You can never be too cautious with dogs that behave this way.
After 6-7 months, the tenants were ordered to vacate the dog from the premises. Soon after they vacated themselves.
The most recent tenants were also a handful as they treated their front yard as another area to store their belongings.
They obviously had an overabundance of items, more than could fit into a 1,300-sq. ft. rental.
Their belongings would often encroach across the property line with a disregard for their neighbors.
There were other headscratchers that would occur such as blocking half our driveway with their trailer, revving their motorcycle (very) often, leaving half-eaten food all over the yard, blocking the mailbox with a basketball goal, and lastly leaving some type of device on in their living room that would result in a hum that could be heard in my living room.
It was aggravating, to say the least.
Well, a month ago, both my husband and I got to breathe a sigh of relief. It was a normal day except for a lot of commotion from the “house to the north”.
After peering out the window, it appeared as though there was a large moving van that was parked in the driveway.
What, moving?! Rejoice, rejoice!
The next day, their driveway was clear and the only thing awry was the front window that was left ajar. Likely, this was done on purpose because it was supposed to rain that week.
At that point, I realized they had not left on good terms. They were evicted.
This was confirmed by the notice that was taped to the door.
Let’s just say they didn’t leave the house in tip-top shape, to put it mildly.
Second Thoughts On Becoming A Landlord
Considering the most recent tenants, they were either not screened properly or it was just bad luck. There’s no way to know.
These tenants cost the investor money in more ways than one – turnover, evictions, damages, excessive clean-up, etc.
After these two incidents, you may think that it would be hard for me to consider becoming a landlord.
Yes, it made me question it – FOR SURE.
Before these experiences, I had already had hesitancy due to all the horror stories and renting fiascos I had heard throughout the years.
You know, the stories that go like this:
- Chainsaw through the bathroom door
- Kitchen set on fire
- Hammered nails all over the outside back wall
- Kick holes in doors
- Full-grown trees cut down
This is all REAL – btw.
I will be at a crossroads soon in making the decision to rent out my home. I’m leaning towards doing it.
Here is what I am thinking –
♦ It’s either now or never. If I rent out my home then I will find out if it is something I want to continue doing, and potentially down the line acquire another rental property.
♦ I’ve already done the math and it works out. A rule of thumb is to take 1% of your home value and determine if you can rent out your place for that amount. Let’s say $150k value x 1% = $1,500.
You would need to be able to rent it out for at least $1,500 to account for expenses and still turn a profit. For non-math fans, simply take the home value and drop the two zeros at the end – $150,000 turns into $1,500.
When you buy property for the sole purpose of renting it out, you have to consider other areas, monetary or not. Think about location, size of home, upkeep, etc.
Now, let’s take a look at some things I would consider when placing a tenant.
A checklist, if you will.
This will give you some information to mull over if you are considering real estate investing.
With all these tips, please do additional research within your area to ensure you are complying with your state regulations.
At the end of the day, you cannot eliminate all risk. It’s about mitigating your risk.
Things To Consider When Placing A Tenant
#1 – Review HOA bylaws.
If you live in a neighborhood that has an HOA, review the bylaws to determine if there is anything that would affect tenant selection.
For instance, if the HOA does not allow parking in the street at night and your tenant has a trailer – they can’t park the trailer at the residence.
Rental agreements should reference the HOA bylaws and restrictions so the potential tenant is fully aware that the rules apply to them too.
#2 – Have an interview/Ask relevant questions.
– How many occupants? Set a guideline as to how many people can occupy the home.
(The next questions are framed as though there are at least 2 occupants.)
– Can they cover the 1st-month rental payment and security deposit in full?
– Why are they moving? This is good to know!
– Ask about their line of work and monthly income. This will allow you to determine #5 tip below.
– Will there be any pets? If yes, what type? This is IF you will allow pets. You may opt not to allow them.
Have the potential tenant fill out an application with pertinent information. This gets all information you will need down on paper.
#3 – Credit & Background check.
A credit check will show credit and rental history, outstanding debts, confirm identifying information, list evictions, bankruptcies, chronic late payments. All this information is essential to making an informed decision.
A background check is equally as important to determine if assertions are true and if there is any history that may raise a red flag.
The tenant has to agree to a credit and background check.*
#4 – Credit score – 620+, the higher the better.
A credit score gives you an idea of how financially apt the person is in paying their debts as they come due.
That’s why it’s so important to maintain a solid credit score. It can easily affect getting a decent interest %, car loan, mortgage, etc.
As an investor, it is in my best interest to see a higher credit score.
A credit score of 620 is fair – not good and not bad.
If you are curious as to your credit score, you can always check through one of the three credit reporting agencies or get it for free through Credit Sesame.
Related article: Credit Score Guide + Tips To Boost Your Score
#5 – Solid work history and Income vs. rent ratio makes sense.
The potential tenant should have a solid work history and job tenure.
There are different ways to determine if the person will be able to make the payments, just by taking a look at their monthly gross income.
You can use either the 40x rule OR 30% rule. The math is different, but it’s the same result.
Assuming that the rent was $2,000/month.
The annual gross income would need to be at least $80,000 ($2,000 x 40).
Take $80,000 annual gross income by 30% = $24,000 max rent per year.
$24,000 divided by 12 = $2,000 max rent per month.
#6 – Contact references – at least 3, includes 1 employer.
It goes without saying, but as with any type of references, it’s always good to connect directly by finding the person’s phone number yourself if at all possible.
This will prevent someone standing in as the reference when it merely is a “friend” or “acquaintance” of the rental candidate. You never know these days.
Depending on who you contact, frame your questions accordingly.
For instance, a call to the employer reference will center around the date of hire, current salary, hours worked per week.
#7 – Contact previous landlords, if any.
Keep in mind when contacting the most recent landlord – they may say whatever they can to get rid of the tenants and will paint them in a good light. There is no way to gauge for sure, so looking past the most current landlord may be beneficial.
The Bottom Line
Once a tenant is placed, add landlord insurance that provides both physical and liability coverage. In my case, I would switch from homeowner’s insurance to the landlord policy. In the tenant’s situation, they would acquire renter’s insurance to guard against personal property loss and liabilities.
Taking this all into account, if you are interested in becoming a landlord or at the least renting your home with the use of a property manager, rest assured that not all renters will make you do a double-take.
Remember, there is no perfect formula to ensure a 100% successful tenant placement.
As for me, I can look through the muddled mess and see potential in my situation to turn a profit and create passive income.
Sure, there is risk involved, though if safeguards and precautions are taken it helps to minimize the issues that may occur.
Follow along to see how I approach renting out my home for the first time! This may become a reality very soon.
If you are interested in learning more about real estate investing, check out Biggerpockets.com.
Read more about my mission HERE.
*As with all financial and investment decisions, consult a professional. Read disclaimer here.
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Readers, what do you think about being a landlord? Have you ever rented out your primary home? What am I missing from my list that would be important to add?