One of the most daunting obstacles any new investor faces is getting their property ready for a renter. You spend so much time planning for the purchase of the property, you don’t realize you eventually need to fill it with a tenant. Purchasing a property might seem like a monumental task but getting it ready for a tenant is even more extensive.
Table of Contents - How to Rent Your Property: A Step-by-Step Guide
With each new property you rent, the process of finding a tenant will become easier. If you’re just starting on your first property, here’s a quick guide for getting up and running. This is a simple framework—the actual process is much more involved. Remember that taking the time to do things right will benefit you in the long run.
Create a livable space
Once you own the property, you’ll need to start updates and renovations before renting. In some cases, this is as easy as changing the locks and patching up the drywall. In extreme cases, you might’ve taken out a cost-plus-improvements mortgage ahead of major renovations, like roofing and foundation work. Most often, the work will lie somewhere in-between. Record everything you do to fix up the property and figure in the costs—they’ll be important when it comes time to determine the financials.
Determine the financials
Once the home is physically ready for tenant occupation, spend time running the numbers to figure out what you need to charge.
Start by determining the cap rate of the property. How long will it take you to recoup the cost of your investment through various rent cost models? Next, look at local markets for comps. How much are similar buildings renting for? Look at similar rental listings and aggregate different price points into your rent planning. Factor in the cost of your mortgage, any improvements made and premiums for management companies or ongoing maintenance.
When you have a number, run it through cost models to make sure it stacks up with your investing approach.
Write your lease agreement
Before you start advertising your property to potential renters, make sure you have a lease agreement prepared. This is the code by which your tenants will abide and will outline the responsibilities of both you and your tenant. Include the essentials, such as:
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- Names of tenants
- Address of the property
- Lease term length
- Rent amount
- Security deposit amount
- Late fee description
- The move-in condition report
- Provisions (pets, smoking, utilities, maintenance)
It’s a smart idea to have a lawyer review your lease—especially if you model yours on a template. Keep two copies of the lease handy—one for your records and one for your tenant.
Advertise the property
You can put up an advertisement just about anywhere and get rental inquiries, but that doesn’t mean you’ll draw good candidates. You want to attract tenants with good rental histories, the means to pay rent and people who will respect your property. To appeal to these types of people, you need to advertise in the right places.
Place your ad on popular listing sites like Zillow and Kijiji. Use plenty of pictures, a well-written description and a thoroughly listing of amenities. Keep in mind that most people are browsing by price and area, looking for locations that stand out. Catching their eye with your photos will help attract more prospects and a wider range of applicants.
Outside of online listings it’s always smart to put up a yard sign and leave hang-ups on local bulletin boards. Your flyer in a coffee shop might attract a tenant combing the board, just as easily as a yard sign might grab someone’s attention as they pass.
Evaluate prospective tenants
Once the applications come flooding in, you’ll need a yardstick for evaluating them. Eliminate anyone who does meet the basic qualifications of being able to provide proof of employment, stable income or record of good tenancy. Pull a full background report and evaluate the following factors:
- Income and job history
- Criminal record (including felonies)
- Financial history (including bankruptcies)
- Proof of employment
- Prior evictions
You’re not necessarily looking to qualify someone—you’re looking for red flags that might disqualify them. Be wary of people with black marks on their record or lack of history. Remember, you can always ask for a surety signatory on the lease, but it’s still worth disqualifying people who may not have the history or means to be good renters.
For tenants who pass the background, you’ll want to further inquire about current proof of employment and the number of people who’ll be living at the property. Income should be two to three times more than rental fees and there should be no more than two people per bedroom.
Sign the lease agreement
Finding the right tenant might take a little time, but it’s worth it. A responsible, stable tenant is the key to positive cash flow at your property. When you do find this person, it’s time to sign the lease agreement.
As part of this process, you’ll need to do the condition walk-through. Take the tenant through the house and document anything out of the norm—scuffs, scratches, appliance problems, exterior issues and anything else. This protects the tenant from liability and gives you a standard to match up to future inspections. You’ll also need to get the security deposit before move-in and set the move-in date.
Use this time to also answer any tenant questions before move-in. It can help clear up any confusion that might arise from the rental agreement.
Manage your property
Now your tenant has moved in and is paying rent! The last thing to consider is upkeep. Your property is going to need maintenance and your tenant will likely have questions. Someone needs to tend to these things. You can choose to pay a property management company or do it yourself. If you do it yourself, be prepared to play the role of an engaged landlord and keep a close eye on the needs of the property. If you go the property management route, prepare to give up a margin of your profits.
The process of onboarding a renter can be intimidating, but it gets easier with each new tenant. Develop good processes for yourself and it won’t be as overwhelming as you think.
Renovating And Renting Out My First Property
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