Owning a rental property and being a landlord is similar to that of having a second full time job. The amount of work required can get pretty overwhelming if you are not organized. To get the best out of your lease and to get the process started on the right foot, you need to go over a series of documents with your prospective tenants. Not only will this put your tenant at ease, but many of the items are added with your protection in mind. Tenant turnover can be a hectic time, but if you have a defined system in place, it can make the process as easy as possible.
The first document you need is your application. It is amazing how many landlords either don’t have an application or don’t follow up with the contents. The application should be your starting point for any new lease, regardless of how desperate you may be to find a tenant. If you don’t know who you are renting to, you cannot complain if your tenant suddenly stops paying or damages your property. The application should be done whether the prospective tenant is a referral or they saw your property online. You wouldn’t expect to buy a car without completing an application. The same should apply for a rental property. This step has to be done with every new tenant – without exceptions.
If there are no snags with the application, your tenant will want to know about the lease. Your lease can be anywhere from a one page cookie cutter form to a twenty page report done by an attorney. Ideally, you want to be somewhere in the middle, but your lease should clearly define rules, expectations and commitments. You should have the start and end dates, along with property specific rules and guidelines. The more you leave to chance, the higher probability you may have an issue down the road. Every potential worst case scenario has to be covered in your lease. This may scare off a few tenants, but it is better to discuss what happens if a fire or flood damages the property than have one more thing to worry about at that time. In the event that your tenant damages the property or has to be evicted, it is your lease that will offer some protection.
Preferably, you will begin showing your property with ample time before the start of the lease. If your tenant agrees to the property and you want some commitment, you should present a holding agreement. A holding agreement states that they are going to rent the property and present you with a portion of the rent to do so. If they back out a week before move in, you get to keep the discussed amount. If they move in, it will be deducted from the first month rent. If you have a long enough gap before they move in, tenants can change their mind, find somewhere else or be relocated for work. If they do leave unexpectedly before the lease starts, it will leave you scrambling to find someone else. A portion of the first month’s rent will give you the ability to prorate the first month if you do find a tenant in short notice. If you ask for the full first, last and month security you will have to refund this amount if they never lived in your property.
When your tenant does move in you need to spend the first day walking the property and taking pictures of any problem areas. You can opt for a video over still photos, but you need to do something to record the condition. This will give you documentation to fall back on at the end of the lease in the event of property damage disputes. It is also a good idea to send these pictures to your tenant and state on the email if there are any other issues that were overlooked to inform you through email in the first few days. If your tenant knows that you have recorded the condition, they will be more likely to take care of the property knowing that they can get away with any damage.
When you get close to the move out date, you should provide your tenant a list of dates and items that will be needed. It is important that you send firm dates and specific items that you need from them. If the lease runs until the end of the month, let them know that you will be at the house at 9:00 on the 1st to inspect the property. You have thirty days to return the security deposit (plus interest). The lease should state that the unit must be cleaned and broom swept on return and it is up to you to remind them well before the move out date. Let your tenants know that they only have one chance for the inspection and at that time you will need their keys and anything that was moved put back in the position they found it at.
Turning over your properties can be a stressful time if you let it. By having a defined system and doing it every lease, you will have better tenants and a much easier time.
With the costs and burden associated with tenant turnover, most passive income property owners strive to avoid the situation all together. Check out MySmartMoves’s comprehensive infographic for an in-depth look at the expenses and causes of consistent tenant turnover: