Has anyone ever told you investment properties are an excellent vehicle for savings and wealth? Become a landlord? Let someone else pay your mortgage? Passive income? I know I’ve heard it, read it and seen it. It is not the only place for your money as a diversified portfolio in equities, bonds, cash and other side business interests might be wise, HOWEVER, accumulating investment properties – if done the right way, will almost certainly enhance your long term position.

As much as I’d like to talk at length about the benefits of investment properties, that is a topic for another article. My focus here is to give prospective and current landlords a bit of insight on managing rental properties. In practice, it’s not as simple, easy and stress free as people like to think. Instead, the relationship can be a huge headache, costing lots of money and time. By no means do I promise after reading this article that you’ll have the key to a smooth landlord experience, but hopefully this useful information will ensure that you never have to think twice about owning an investment property again.

Market the Property Like There’s No Tomorrow

You must properly advertise your property. This starts with taking great photographs, writing a compelling description and posting the rental on every public website available.

The broader and more effective your marketing campaign, the more inquiries you’ll receive from prospective tenants. The more inquiries you receive – the more likely you’ll receive good long-term applicants with the luxury of being selective and picky.

If you know you can’t market well and/or wish to receive more exposure – talk with a real estate broker about listing your property the right way. In the long run, it will be well worth the benefits of securing a good long-term tenant.

Take the Time to Really Get to Know Your Prospective Tenants

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The Landlord – Tenant relationship should not be taken lightly. You are handing over the keys to your home to a stranger for a good amount of time. Take the tenant search seriously.

• First, make sure you obtain a complete application package. As I explained in my last article – Tips For Tenants, this should at minimum include a rental application, credit report/score and sufficient income verification. If a prospective tenant is having trouble following directions and providing you a rental package in an organized and timely fashion – is that the type of person you want living in your property? Probably not!
• Second, once you have filtered prospective tenants on paper and have a few qualified applications – conduct a thorough background check. Call employers, former landlords, and any other references or contacts listed on the application. DO NOT BE AFRAID TO ASK QUESTIONS. This is your one and only the time to find out as much as possible about this prospective tenant – history, personality, character, hobbies and much more. You must uncover red flags and bad eggs now before it’s too late.
• Third – talk at length with the tenant about any follow up questions revealed from your investigation. Don’t think you are being rude. Confront issues and talk frankly. At this point, given everything you know – how prospective tenants answer these questions will determine whether you are clear for take-off or if you should explore another application.

Negotiate Favorable Terms

As landlord, you will likely be responsible for drafting the lease. Approach this as an opportunity to add or delete terms that make sense and work for you. Only driveway parking, no pets allowed, tenant maintains landscape, and so on and so forth – write it in the agreement!

The lease will govern the relationship and be the center of attention if anything goes awry. Establish a strong foothold.

It may also be smart to include a list of house rules. This could include, among others– no excessive drinking, no drugs, and other reasonable requests. These items may also be covered in the lease agreement, but always better to be expressly written.

Again, if you do not have a lease agreement or are unsure as to how best to protect your interests, consult a real estate broker and or attorney for help and guidance. It’s extremely important to be covered here because although we hope it never becomes an issue – if things get ugly, a well-drafted lease is the difference between winning and losing- monetarily!

Keep the Property Maintained

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To avoid conflict with the tenant, and potential reduction or cessation of monthly rent payments, make sure the property, both inside and outside, is reasonably maintained. Ensure appliances work, fix defective conditions and hazards, and otherwise have the property in good working order. This may cost some money up front, however – in the long run you’ll save on lower tenant turnover, fewer big-ticket property repairs and neighbor complaints.

If you know you can’t take care of your property properly, it may be best to employ a property management company. Cutting corners here will cost you more money in the future.

Be Friendly – But Not Too Friendly

Fostering an open line of communication with your tenant is important. Figure out what modicum is best – text, email or calls. Your tenant should know he or she has someone who will be responsive to issues that arise. Poor communication turns tenants off. It is never good for you as a landlord when tenants get turned off.

Lastly, as much as you may want to become best friends with your tenant, and I know it’s hard to resist, try your best to maintain a friendly, but professional relationship. Getting to close may cloud your judgment – making it even harder to make smart financial decisions, and exposing yourself to preventable liability.

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Michael J. Libutti is a Broker and Attorney at Class Realty Group’s San Diego office. He can be reached by email at mlibutti@classrealtygroup.com or by phone at 858-220-4295.