Investing in Rentals -- What Do I Need to Know?
STEP 1: The first "secret" to successful real estate investing, whether you intend to repair and re-sell the property or to lease it, is to buy it right! There are lots of properties on the market right now at very low prices, and it is a good time to buy. If you need help evaluating market value pricing, we can help you with that! We have a long history in this market,and can assist you in determining if your purchase price will provide you with a good investment.
STEP 2: Many of the available investor properties will be in need of some level of repair, and your total cost will depend upon whether you can do those repairs yourself, or will pay a contractor to do so. We have a construction specialist who can accurately estimate what repairs will be required and what they should cost. If you want his help, with or without use of our sales or management services, he can give you a complete bid for any work to be done.
STEP 3: Have cash reserves on hand in case of emergency repairs or vacancies! With a single property, this is especially important. If you decide to invest in several, the cash flow can often cover deficits from unexpected costs.
STEP 4: Be sure all repairs are completely done and that the house looks good before you put it on the market! A partially repaired house will not solicit fair rent offers and leads tenants to question how much or how little will actually be done.
STEP 5: Establish a market rent rate for your property. We manage approximately 150 properties in all areas of southwest Dallas and Tarrant Counties, so we have a good idea of what your home should rent for! We evaluate our own previous and current rentals, as well as all comparable rentals in your area for the past 6-8 months.
STEP 6: ADVERTISE! Decide where and how you will try to reach the maximum number of valid prospects. You also need to evaluate the cost of advertising vs. its effectiveness. In our area, we find that newspaper advertising is generally neither cost-effective nor very area-specific. We provide a special page on our own web site (www.BuddyWhite.com) for current rental inventory, with full description and photos. We add our rentals to the Multiple Listing System, and to several other direct web sites where we provide input. Other web locations "pull" listings from our primary sites, giving another twenty or more sites with our properties advertised. We also add listings to Craigslist.com, but we find most other free sites not to be as effective or as secure you might like. We subscribe to Rentals.com, to which we add representative properties without charge to the owner. Most of our prospect calls come from our own web site and from yard signs.
STEP 7: Select your tenants very carefully! This may be the most difficult and important step of all. Even as experienced managers, we can occasionally be fooled, so it's essential to do everything possible to check out the information received thoroughly! Do you have an application form prepared? Do you have access to one or more verification companies to check credit and other important details? Our two-page application includes the information we need to check employment and income, credit, criminal background, and past rental history. We require every adult occupant over the age of 18 to provide application information. We employ an online service to provide credit, criminal and part of the rental history immediately, so we can verify most tenants quickly. We verify drivers license, criminal record and civil court records through a second online service. Employers are called directly, as are past landlords. Because some folks will provide "dummy" phone numbers for employers and landlords, we also "back-check" the numbers given to be sure they are legitimate!
STEP 8: Sign the lease with your new tenant. You will need to locate a lease form that meets your own requirements. The Texas Association of Realtors lease is probably the most-used, but it is only considered binding when used by members of that organization. Office supply companies sell "standard" leases, but they are not always coordinated with complex local and state property codes. You will want addenda to cover specific requirements and liability release for any special circumstance, such as pets on the premises or a pool/spa with the property. We use the TAR standard lease, with several additions we have made based upon our long history in managing properties, as well as addenda for every special property condition.
STEP 9: Collect the Security Deposit and account for it. The Texas Property Code requires that you keep security deposit funds separate from your own accounts, and that you disburse any refunds at the end of the lease according to the law. Texas is very specific in how Security Deposits must be handled during and at the end of tenancy, so be sure to access that section of the written code. We maintain an escrow account and do all reporting and accounting for our owners. We are familiar with the requirements for refund of deposits, and with owner rights to withhold amounts for damages and other charges.
STEP 10: Start collecting your rent! Determine exactly how and when you will have your tenant pay you monthly. (We do not recommended weekly payments.) Will you accept personal checks or require money orders? Will you accept cash? Will you personally collect from them at the property? Will they mail payment to you? Can they bring the payment to your home? Will you have specific hours for them to pay? Will you charge a late fee after a certain date? We provide multiple means of payment by tenants. They can pay by mail, or by delivering rent personally to our office or to a lock box at our accounts receivable office; they can mail payment to us, with the lease stipulation that our receipt of funds determines whether they are late or on time. We have a payment account at Paylease.com for their online use, and can provide a registered card so that cash payments may be made at local retailers such as Walmart. We accept checks (until one is returned), money orders, or certified checks.
STEP 11: Get very familiar with the Texas Property Code, since there are a large number of legal requirements for a landlord to adhere to. Copies of the code are available for purchase, and the sections on Landlord/Tenant law (Chapters 91-94) should be reviewed carefully. After more than 40 years of management, we are immersed in the Property Code, so that our responses to problems are almost automatic. We understand lease provisions and how to enforce them, as well as court procedures for those times when things don't go well.
STEP 12: Plan to do periodic inspections! Unless you are in the property, you don't know what the condition is, so be familiar with your landlord access rights. We do at least an annual inspection of every property, and more if there are condition concerns. Our service providers are also trained to evaluate condition and report any issues to us any time they are in a property for repairs.
STEP 13: What if they don't pay?? You need to be familiar with your rights and duties in providing notices for collection, and in court procedures should eviction be required. You also need to know which court has jurisdiction for your property, since procedures can vary from one court to another. We send the required three-day notice to vacate to every unpaid tenant by the fourth of each month. If they do not pay, we file in the appropriate precinct's court, attend court and arrange for set-out if necessary. We employ a service to pursue collection of the judgment if requested.
STEP 14: Once the tenant has moved -- begin again at STEP 2!
QUESTION: Can I do this myself?
Yes, you can! Many people do, and some even enjoy it. The real question is whether or not you WANT to do it yourself! (Property management takes a lot of time, a lot of information, and a lot of patience -- it involves frustrations that sometimes don't seem worth it.) If your answer to the second question is "maybe not," then call and discuss with us how we might be of help to you.
That's what we're here for!