Playing Landlord: Not as Easy as It Looks

With the increase in foreclosures and tightening lending standards, rental-vacancy rates across the country are dipping and first-time investors are becoming first-time landlords. A recent Denver Post article shows that renting is more than just collecting a check every month.

Renting is on the rise across the country, as are average rents, creating an appealing atmosphere for property investors. If you have never acted as a landlord, it may be more complicated than you think, says Matt Moon, a real estate broker who also manages rental properties around Denver, Colo.

One of his favorite horror stories involves a tenant who told him flat out that she had no intention to pay her rent. “She said, ‘You have to evict me,’” Moon recalls.  Evictions aren’t fun, and the process takes about a month after all of the legal paperwork is completed, says Moon. Even after giving some tenants a three-day written notice of nonpayment, some are still shocked when eviction actually happens!

To prevent evictions, make best friends with credit-check companies, recommends Jeff Malone, regional marketing director with Rental Services, Inc., in Arvada, Colo. For a mere $32 a person, a company like Malone’s can check references, credit, criminal history, bankruptcies and evictions using public information available in area courthouses and through state Bureaus of Investigation and proprietary sources. “If people got in trouble for owning their own homes, with a delinquent credit report or a foreclosure or bankruptcy, sometimes landlords are more skeptical about renting to them,” Malone explains.

As a landlord, you should create a list of rental criteria, including what you are willing to let slide (such as a misdemeanor or a bankruptcy). That way, if a renter does not meet your criteria, you can easily explain why. You can also charge potential tenants for credit and background checks. Applicants who are willing to pay an application fee before moving in are typically pretty truthful about the information they are providing, says Malone. He estimates that a staggering 65 percent of the applications he sees have some sort of problem, from bad credit to felony convictions to foreclosures. This statistic makes it crystal clear why a background and credit check is critical to weeding out future problem tenants! If you are an owner renting an apartment, keep in mind that you do have to follow the federal Fair Credit Reporting Act, which requires both landlords and tenants to complete forms.

If a rental situation gets to the eviction stage, Matt Moon recommends that landlords be “matter of fact.” Based on his experiences over the last 10 years of owning rental properties, tenants cannot usually make up rent they owe if they are over a month and a half past due. You can also mitigate expenses from any evictions by charging an appropriate deposit on the front-end, since many tenants who are being evicted will not clean or repair their apartments before vacating.

On their side of things, tenants can prevent problems by understanding what they can afford when looking to rent. The U.S. Department of Labor recommends spending no more than 25 percent of your total income on rent. Additionally, before you fill out a rental application, check with the national credit reporting agencies to get potential credit problems resolved.

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