Smart landlords do serious due diligence |
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Jim McDavid has survived 40 years as an owner, manager and seller of rental property by doing very thorough due diligence, and basically by doubting everything prospective tenants tell him. In fact, McDavid says he gets a police report on applicants and asks for photo identification as an extra precaution. Although procedures vary from state to state, McDavid says in Virginia he simply walked into the sheriff's department and paid a small fee for the criminal background check.
"I've owned just about everything in the book,"
McDavid says. "I owned condos in Florida and houses in Charlotte,
(N.C.)." McDavid, a licensed real estate broker in his home
state of South Carolina, as well as in North Carolina and Virginia,
says, "Everything changed on 9/11, even in real estate."
Buy adequate insurance
Protecting yourself goes beyond combing through a tenant's background.
McDavid says that too often landlords skimp on a very important
item: insurance.
"Tenants create all possible situations you can
imagine," he says. McDavid tells of a young female who rented
from a client. The woman's boyfriend slipped her two illegal drugs
-- ecstasy and methamphetamine. Her family is suing the boyfriend,
the lender on the property and the owner of the town house.
"Protect yourself against the impossible," McDavid says of insuring rental property. "You need as much (coverage) as you have on your automobile driving around." Also, most experts recommend requiring tenants to have renter's insurance. The owner's coverage only repairs and replaces the actual structure and many times the appliances, but not the tenant's belongings.
Another form of protection is proof of a property's
condition. McDavid suggests having a written, signed document with
photos of the property when the tenant moves in.
"Establish a baseline," he says.
Just say 'no' to form leases
And what about those leases for sale at office supply stores? They're useless because each state has different landlord and tenant laws. McDavid suggests getting a standard lease for your state from a real estate office or association.
Warren Wheeler, a real estate attorney in Atlanta,
agrees.
If you buy a lease-in-a-box, Wheeler says, "for
a good bit of time that works -- until there's a problem."
Those generic form leases also don't take into account concerns
for different types of dwellings. A high-rise luxury condo will
have different stipulations than half of a duplex or a converted
row house or a single family home on an acre of land or a unit above
a bakery. Get an attorney to help add provisions particular to your
property, Wheeler suggests.
Also, set up house rules, put them in writing and
enforce them uniformly. If one tenant feels another tenant gets
special treatment, it could be considered discriminatory.
"You can't discriminate racially," Wheeler
warns. "There's a federal law against that."
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