|
Owning rental property seems like an easy way to generate extra income. But it's actually not all that easy.
Nevertheless, the number of people buying second or
third properties as investments has grown tremendously, according
to the National Association of Realtors. In fact, the group's recent
survey found that 36 percent of home sales in 2006 were second homes
and 35 percent of current investment property owners plan to buy
another property in the next two years. Since 46 percent of those
questioned by NAR said they bought the investment property for the
rental income, it behooves landlords to be scrupulous in their searches
for good tenants.
 |
| How landlords can protect themselves |
|
|
|
| |
|
| |
|
Source: Istock.com |
|
|
|
|
Landlords who take shortcuts when screening potential tenants, who skimp on insuring the property or who fail to outline everything in a detailed, written lease can end up with unpleasant and, yes, costly surprises. But there is one shortcut neophyte landlords can take: They can listen to the pros so they won't have to learn lessons the hard, expensive way.
Do your own due diligence: A case study
Take, for instance, the tenant that so looked good on paper, with his attractive credit report and handsome deposit check. Too bad the paper he looked good on was bogus.
Apparently, this seemingly perfect tenant doctored
his credit report, giving himself a stellar rating. Then the guy
bounced his hefty $4,000 deposit check. Pasadena, Calif.-based landlord
Payman Emamian blames his real estate partner for renting to this
con man. Not only were they out of money, but the lying tenant damaged
the investors' two luxury Hollywood town houses. (The guy claimed
he'd work in one and live in the other.)
After three months, Emamian successfully evicted the man, but not before he ran up a $20,000 tab for back rent, legal fees and repairs.
Emamian's sage advice to landlords: "Never accept a credit report that a tenant brings you." That's what Emamian's real estate partner did with this guy.
Emamian, who bought his first rental property -- a
four-unit building -- in 1998, says he's learned to double-check
everything. To help landlords dig into backgrounds, companies, such
as the Houston-based National Association of Independent Landlords,
or NAIL, provide credit reports and scores for $15.95 each. Landlords
must first get the applicant's permission, signature and Social
Security number, plus they must provide their own proof of real
estate ownership, photo identification and credit card number for
payment. NAIL also provides a host of other background checks, including
a nationwide criminal search for $12.95 and a national eviction
search for $5.95. Many landlords charge prospective tenants an application
fee to cover the costs of screening.
Emamian doesn't stop at second-guessing tenants. He applies the same level of scrutiny to information provided by sellers when he's scouting a potential rental property. "Never listen to sellers as to what the expenses are," Emamian says. "You research."
Most buyers know they need to foot the bill for taxes, insurance and some maintenance, but many don't factor in utilities, landscaping, private trash collection or the loss of income when the unit is vacant.
Check references
As for screening tenants, Emamian always asks for two landlord references.
The past, not the current, landlord is the most important reference
because the present landlord may fudge the truth to get rid of a
terrible tenant. Also, the landlord can either pay an outfit like
NAIL to question present and previous landlords and employers or
do it themselves. Emamian also asks for a copy of a bank statement.
"I want to make sure they have assets -- how
is that check going to clear?" says Emamian.
|
