Reserves, Roommates, Rental Rate, Red Flags, Relationship
Reserves – this is very important for investors, and property owners. You never know when the roof will leak, the water heater will go out or some other unexpected maintenance item will pop up. I keep saying this again and again but you need to treat your rentals as a business and you need to protect your business and investment by having reserves to cover unexpected expenses which may include no rent for an extended period of time. I like to have at least 5,000-10,000 in reserves. If you are in positive cash flow then maybe at minimum a couple thousand since you will get rents to cover the rest. In my business all properties must have $500 in reserves at all times to cover maintenance costs that come up after we have given owners their money for the month. Your reserves should include the tenant security deposit, a couple months of unpaid rent, taxes, insurance and probably a couple thousand to cover higher expenses that may pop up. Even if you put this on credit card you will still need to pay the bill when it comes due. By having reserves you immediately lower your stress level when something does happen that is unexpected.
Roommates – if you rent to roommates you want to make sure that each qualifies and passes your screening test independantly of eachother. The monthly rent check should be one check collected by you not individual checks. You rent a house not rooms in a house. Make one roommate the point person that you will communicate with regarding the property. You want to list all roommates on the lease. If they are students you want to get parents to co-sign that they guarantee the rent and make sure they are aware that they are responsible for all roommates not just their child in the case of late rent or damages. This often will cause parents to think twice about co-signing and it should.
Rental Rate – how do you determine the fair market value of your property. Look in the papers and on craig’s list or other online rental websites to see what comparable properties are renting for. Look on the websites of local property management companies to see what they have for rent and their prices. Price the property slighly below the market average. Put your advertisement out there and you should be getting calls immediately if not, then drop the price agressively not by $10 0r $20 but by $50-$100. You want to get lots of calls so you get lots of applications and lots of good prospects. The longer your property sits on the market the less traffic you will get and the more money you lose. You can’t make up one month of lost rent. If you don’t want to drop rent, drop the security deposit or offer a move in incentive.
Red Flags – if someone offers to pay 6 months rent or 12 months rent in advance, if someone can move in tomorrow, if someone can’t pay the move in funds with a cashiers check or money order – NEVER accept a personal check for move in funds. Monthly rent is ok but not the initial move in funds (rent, security deposit, pet deposit etc). Someone tells you their life story, are you prepared to get more stories like this monthly when the rent isn’t paid on time? There are holes in their application. Where were they living for 6 months?? If their income is high but their credit is bad, why? When showing a property if the prospect asks if you will take less. My standard statement is we don’t negotiate during showings. Apply and if you are a strong applicant we can discuss the possability – only if you want to consider lower rent. My feeling is why is someone looking at a property for $2700 and only wants to pay $2000. They should be looking at $2000 priced properties.
Relationships – start the relationship in a positive way. Always come from a place of positive intent instead of assuming the tenant is out to screw you. Try to put yourself in their shoes. Always be professional, respectful and try to find solutions. Listen and document. You aren’t their best friend. You are their landlord so keep the relationship defined. It keeps the boundaries clear. Be friendly and approachable so tenants will want to report maintenance issues and never be accusatory even if you are right. You always want a win win even if that means you help move the person along. When people are pushing my buttons I stop and my approach is to: Kill them with Kindness.
Please check out my website at www.PortolaRentals.com if you are interested in properties in Santa Cruz or have rentals in Santa Cruz, CA.
Kathleen Richards
