Being a landlord is 25% people skills and 75% risk management. Then add some marketing flair and you are in business. The game is to keep the job easy by reducing the likelihood of problems to evolve down the road. Since the legal component of land lording is particular important, we will start right there.
MUST KNOW
Educate yourself. The best book I have come across is “ARIZONA LANDLORD’S DESKBOOK” By Carlton C. Casler, Attorney at Law / Licensed real Estate Agent. In this 500+ page easily navigable book you will find just about everything there is to know about Land lording from a legal perspective including all the forms you need. Another reference is Arizona Revised Statutes, Title 33 (chapter 3,10) that can be viewed online (see links below).
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Security deposit can be no more than 1.5 times monthly rent.
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The total of Late fee's cannot exceed 20% of monthly rent.
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Tenant must receive a signed copy of lease.
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The lease must state how tenant can obtain a copy of the Arizona Landlord Tenant Act.
CASH MANAGEMENT
Keep rental finances separate from your private by setting up a dedicated rental checking account for income & expenses. I recommend that a simple spreadsheet be set up for each property: List the rental income (allow for vacancy) followed by expenses such as property taxes, insurance - remember to include a line for maintenance/repair where you can amortize big-ticket items such as A/C, Water heater, Carpet etc.
The spreadsheet will make it easier to monitor your cash flow and make sure enough funds are left in the account for big item repairs down the road. Also you will have a 'bottom line' idea of how much (if any), you can transfer to your private account every month.
Note that even with a negative cash flow you may be making money through tax deductions, among investors called 'phantom income'. The U.S tax laws are very favorable to Real Estate investing. Therefore ALWAYS use a CPA when owning rental property or money will be left on the table.
ADVERTISING
Check HOA rules for rental policies. Most HOA’s will not accept leases less than 6 month, and requires a copy of the signed lease. Some HOA will not tolerate generic “FOR RENT” signs and there may be restrictions on where you can post them.
Fair Housing rules not only applies to licensed Real Estate professionals – It is a hot topic, and you must use caution not in any way to exclude a group of people based on : Race & Color, National origin, Sex, Religion, physical/mental disability and familiar status (children under age 18). See links below.
A sign at the property combined with classified advertising wil serve the local crowd, but make sure you are presented on the web as well. Some newspapers will put your classified ad online via a nationwide rental website such as Apartments.com - Many of these sites will post pictures and present maps for your out of state prospects.
Free listings in Tucson: Real Estate direct, (520) 623 – 2566
Pima County Housing search
PRICING THE RENTAL
Check the nearest and most comparable rentals by calling the landlords and find out their terms such as minimum lease period, deposits and if any utilities included. You can also go to the search menu and specify "Mls rental listings" from the drop down menu, then pick a zipcode or an area and select criteria matching your property.
If it’s a tenants market then one strategy that may work very well is to lower the rent to 3-5% below comps:
- You will have more tenants to choose from
- You will most likely reduce vacancy
- As you reduce vacancy you will make more money
Vacancy is what usually drags a rentalhome budget into red territory. Let’s look at 2 Landlords renting out on the same street with identical houses. Landlord A charges the standard 1000/mo rate like everybody else in the neighborhood, while Landlord B low balls at 950,-
Since "B" gets the most calls, he not only gets to pick the best suited tenants, but he also rents the property out faster. Lets assume that Landlord A on a 5 year average rents out 10.50 month a year (12% vacancy), while Landlord B manages 11.50 month a year (4% vacancy). After 5 years: Landlord A had rental income of 10.5 x 1000 x 5 = $52.500
Landlord B -------------------------11.50 x 950 x 5 = $54.625
Since Landlord B had less turnover he saved additional time/money on advertising, screening and possible other monetary losses from marginal tenants whom he did not have to pick.
DUE DILIGENCE – TENANT SCREENING
The cheapest eviction you can ever do is the one you do up front in your selection process!! These are the three most important things to check:
- Prior rental history
- Credit report
- Employment
It’s really a balance between the three. Say one tenant does not have a long solid employment history or a great credit then a spotless rental history must compensate. Or a great credit and employment record must substitute a questionable rental history. Finally add in some common sense to the equation and you will rarely be in doubt.
Usually the first contact is through a phone call – try to sift through the candidates already at that point by laying out your terms: *Pets/no pets, min/ max lease / deposit or any other qualifying condition. NEVER EVER disqualify a tenant based on a condition that in any way can be misconstrued to be a fair Housing violation. Disqualify solely on Technical facts such as Credit, rental or employment history. Cut & dry.
*Not accepting pets will reduce your tenant base by almost 50%, thus extend your vacancy. Maybe one small dog or cat is ok but not three. If you accept pets, then add an additional deposit of say $250.
TENANT PROBLEMS
If you have any doubts about a tenant you should start out with a month by month rental agreement instead of a fixed lease. In fact a fixed lease is a one sided agreement where you “lock” yourself down with that tenant for the duration of the lease. During that time eviction is more difficult and requires very specific non-compliance (E.g. lack of payment) before a judge will evict. A month-by-month agreement just requires 30 days notice before the contract expires. If the tenant stays after expiration then the tenant is classified as a “Hold-Over” tenant and much easier to evict without any other reason than the term has expired.
ALWAYS *serve the required 5-day Pay or Quit Notice immediately after the first day rent was due and not paid. Too many landlords wait for weeks. Keep in mind that the 5-day notice is a requirement before any proceedings can continue. In Arizona evictions are fairly swift. If you are on the ball, the entire procedure can be carried out in less than 25 days.
* Hand delivery or certified mail.
Landlords/Property managers are among the most sued people in America. You MUST consult an Attorney to determine how best to protect yourself. Often a combination of an LLC or Umbrella insurance policy will be recommended.
On a daily basis it comes down to avoiding the pitfall: “Landlord knew but failed to act”. In other words when a tenant contacts you for a repair request or a concern that relates to the safety or habitability of the premise, then you must take action. Finally, treating tenants with respect and friendliness probably is the single best thing a landlord can do to enjoy a smooth relationship.
HELPFUL LINKS:
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