The Book on Managing Rental Properties

417 Pages·2015·6.52 MB·English

by  Brandon Turner, Heather Turner

i

The Book on Managing Rental Properties

Copyright © 2015 by BiggerPockets Inc. All Rights Reserved.

Written by Brandon Turner and Heather Turner

Published by BiggerPockets Publishing LLC, Denver, CO

This publication is protected under the U.S. Copyright Act of 1976
and all other applicable international, federal, state, and local laws,
and all rights are reserved, including resale rights: you are not allowed
to reproduce, transmit, or sell this book in part or in full without the
written permission of the publisher.

Limit of Liability: Please note that much of this publication is based
on personal experience and anecdotal evidence. Although the author
and publisher have made every reasonable attempt to achieve
complete accuracy of the content in this book, they make no
representations or warranties with respect to the accuracy or
completeness of the contents of this book and specifically disclaim
any implied warranties of merchantability or fitness for a particular
purpose. Your particular circumstances may not be suited to the
examples illustrated in this book; in fact, they likely will not be. You
should use the information in this book at your own risk.Fin

Any trademarks, service marks, product names, and named features
are assumed to be the property of their respective owners and are
used only for reference. No endorsement is implied when we use one
of these terms.

Finally, use your head. Nothing in this book is intended to replace
common sense or legal, accounting, or professional advice and is
meant only to inform.

ISBN: 978-0-9907117-5-9

First Edition

ii

iii

Acknowledgments

Thousands of hours go into the creation of any book, and only some
of those hours were our own. Therefore, we want to take a moment
to thank the many individuals who helped put this book into its final
form.

Thank you to Allison Leung, for your many hours spent editing our
rough text.

For Mindy Jensen, for your diligent research into numerous aspects
of this book, including the 50 state-specific rules/laws at the end.
Oophta.

For the BiggerPockets Book Launch Team who helped read this
book before the launch and helped us hone in our message!

To Josh Dorkin, CEO of BiggerPockets, for your leadership in this
book writing and publishing adventure and for taking a risk on us.

To the leaders in the BiggerPockets community who helped record
interviews in preparation for this book’s launch.

And finally, thank you to the BiggerPockets community, from who’s
shoulders we have long stood upon. Without your stories, lessons,
guidance, and advice we would not be where we are today.

And to anyone and everyone we missed...

Thank you.

iv

v

Dedication

This book is dedicated to our parents, Rick & Lori and Shane &
Rachel. Not only did you raise us to be financially wise, you also
raised us to know that there are things far more important that
money in this world. Thank you.

vi

vii

Table of Contents

CHAPTER 1 - SO YOU WANT TO BE A LANDLORD? ........1

About the Authors.......................................................................................2

What This Book Will Teach You..............................................................3

What This Book Won’t Cover ....................................................................5

What is BiggerPockets?...............................................................................6

What is Landlording?...................................................................................7

Landlording Tasks........................................................................................8

Should You Manage Yourself or Hire a Professional Management
Company?................................................................................................... 11

Surprise: Everything Won’t Always Apply............................................ 13

CHAPTER 2 - THE EIGHT BUSINESS ATTRIBUTES OF A
SUCCESSFUL LANDLORD....................................................15

A Tale of Two Landlords ........................................................................ 15

Wrapping it Up.......................................................................................... 31

CHAPTER 3 - INITIAL STEPS.............................................. 33

7 Things to Do Before Signing Your First Lease ................................ 33

Inherited Tenants...................................................................................... 41

What Condition Should Your Property Be in? .................................... 44

How Much Can You Rent Your Property for?.................................... 45

The Security Deposit................................................................................ 47

Wrapping it Up.......................................................................................... 51

CHAPTER 4 - FAIR HOUSING............................................. 53

What is Fair Housing?.............................................................................. 54

Dealing with Disabilities and Fair Housing.......................................... 58

Examples of Fair Housing Discrimination........................................... 60

6 Tips for Staying Compliant with Fair Housing Laws....................... 62

Penalties for Violating Fair Housing...................................................... 66

viii

Wrapping it Up.......................................................................................... 66

CHAPTER 5 - ADVERTISING YOUR VACANCY............... 67

Defining Your Ideal Tenant.................................................................... 67

What Makes Your Property Desirable?................................................. 69

Where to Advertise................................................................................... 69

Tracking Your Advertising Results........................................................ 76

Taking Quality Photos ............................................................................. 77

Wrapping it Up.......................................................................................... 79

CHAPTER 6 - TENANT PRE-SCREENING ........................81

What Makes a Great Tenant?.................................................................. 82

What is Tenant Screening? ...................................................................... 84

Pre-Screening Potential Tenants............................................................. 85

Setting Your Minimum Qualification Standards.................................. 91

Section 8..................................................................................................... 99

Showing the Property............................................................................. 102

11 Most Common Questions Asked By Tenants—Answered........ 109

7 Tenants We’ll Never Rent to ............................................................. 114

Wrapping it Up........................................................................................ 118

CHAPTER 7 - THE APPLICATION PROCESS & TENANT
SCREENING.......................................................................... 119

The Application Form............................................................................ 121

The Application....................................................................................... 124

The Application Fee/Identification..................................................... 134

Digital Applications................................................................................ 136

How to Process the Application........................................................... 136

Advanced (& Sneaky) Ideas for Tenant Screening............................ 146

Denying an Applicant After Screening................................................ 148

Should You Allow a Cosigner?............................................................. 149

ix

Accepting a Tenant................................................................................. 152

Next Steps After Approving a New Tenant....................................... 152

Wrapping it Up........................................................................................ 158

CHAPTER 8 - SIGNING THE RENTAL CONTRACT......159

Month-to-Month or Term Leases? ...................................................... 160

Where to Find a Good Rental Lease ................................................... 161

Why the RIGHT Lease Matters ........................................................... 162

22 Things Every Lease Should Contain .............................................. 163

How to Sign the Lease Agreement....................................................... 170

New Tenant Orientation........................................................................ 172

The Tenant File....................................................................................... 179

Wrapping it Up........................................................................................ 180

CHAPTER 9 - MANAGING TENANTS............................... 181

Setting Office Hours .............................................................................. 182

How to Collect Rent............................................................................... 184

Grace Periods and Rent Extensions .................................................... 190

Raising the Rent ...................................................................................... 192

Periodic Inspections ............................................................................... 196

Communicating With Tenants.............................................................. 198

Hiring a Resident Manager.................................................................... 199

6 Ways to Keep Yourself Free From Lawsuits.................................. 202

Generating Extra Income and Reducing Expenses........................... 203

Wrapping it Up........................................................................................ 206

CHAPTER 10 - DEALING WITH PROBLEMS...................207

What to Do When Tenants Don’t Pay Rent ...................................... 208

Handling Tenant Maintenance and Repairs........................................ 213

Bounced Rent Checks............................................................................ 217

x

Abandonment.......................................................................................... 218

What to Do When a Tenant Dies ........................................................ 220

Dealing With Drugs................................................................................ 221

Lease Compliance: The 10 Most Common Problems You’ll
Encounter................................................................................................. 223

Wrapping it Up........................................................................................ 234

CHAPTER 11 - GETTING RID OF BAD TENANTS..........237

Why Tenants Need to Be Removed .................................................... 238

Not Renewing the Lease........................................................................ 239

Cash for Keys .......................................................................................... 241

Evicting a Tenant.................................................................................... 243

Wrapping it Up........................................................................................ 252

CHAPTER 12 - DEALING WITH CONTRACTORS ..........253

The General Contractor......................................................................... 253

The Handyman........................................................................................ 254

Specialists.................................................................................................. 254

Licensed vs. Unlicensed Contractors................................................... 255

5 Ways to Find Great Contractors....................................................... 258

Screening Contractors in 5 Steps.......................................................... 260

8 Tips for Managing Contractors and Handymen............................. 263

Wrapping it Up........................................................................................ 266

CHAPTER 13 - WHAT TO DO WHEN YOUR TENANT
MOVES OUT ..........................................................................267

Notice to Vacate...................................................................................... 267

Preparing for Your Vacancy.................................................................. 270

The Move-Out Packet............................................................................ 272

The Move-Out Inspection..................................................................... 282

Turning Over the Unit........................................................................... 285

xi

The Disposition of Deposit .................................................................. 285

Wrapping it Up........................................................................................ 293

CHAPTER 14 - BUSINESS ORGANIZATION AND
BOOKKEEPING ....................................................................295

The 3 Benefits of an Organized Landlording Business .................... 295

12 Things Your Office Should Have................................................... 297

Bookkeeping Basics................................................................................ 303

Wrapping it Up........................................................................................ 309

CHAPTER 15 - THIRTEEN PRINCIPLES FOR BEING AN
INCREDIBLE LANDLORD ................................................. 311

Final Words of Wisdom......................................................................... 317

Wrapping it Up........................................................................................ 318

Appendix.................................................................................................. 319

Landlord/Tenant Resources for the 50 States......................................lvi

MORE FROM BIGGERPOCKETS.........................................................

1

CHAPTER 1 - SO YOU WANT TO

BE A LANDLORD?

This book was written for anyone who wants to make more money,
work less, and have fun doing it.

For anyone who wants to build wealth while still maintaining a life.

For anyone who wants to travel more, freak out less, spend more
time with family, for anyone who wants to maintain stability while
rocketing their net worth into the stratosphere.

That’s right, effective landlording can accomplish all these goals and
can do so in powerful ways. You might be a first-time landlord, just
struggling to get started with your first rental house. Or perhaps you
are an experienced property owner, looking to find better ways to
maximize your time so you can spend quality hours with your family
and friends. Or maybe you are a property manager, looking after
other people’s properties for a fee and trying to improve your skills.
Whatever your background is, if you want to improve your
landlording skills, this book is for you.

We wrote this book for learners, people who don’t have all the
answers but are continually trying to improve their skills and pick up
new tricks. It’s for experimenters, those willing to hear new ideas and
try them out in their own lives, willing to take the risk of trying
something new to find a long-term solution to their problems. And

THE BOOK ON MANAGING RENTAL PROPERTIES

2

it’s for hard workers, those who don’t believe success comes
overnight, who are willing to get down and dirty and not give up with
the first failure.

In short, this book is for you. If you want to see the power that
effective management can have on your real estate investments and
on your personal life, keep reading.

About the Authors

The beginning years of marriage are often the most blissful.
Romantic dates, chocolate gifts—and real estate?

That’s our story, anyway.

I (Brandon) first met Heather in college and instantly fell in love.
That’s no exaggeration: I remember seeing her across the lawn from
my dorm room, and I said to myself before ever meeting her, “That’s
the woman I’m going to marry.” Less than four years later, we tied
the knot in an outside ceremony in the middle of the Quinault
Rainforest, two hours from Seattle. Instead of the traditional
American story of getting solid jobs, moving to the suburbs, having
2.5 kids, and growing old, we decided to buck tradition and invest in
real estate, foregoing law school to pick up a paint brush. After
selling the home I had purchased before getting married, we bought a
small fixer-upper duplex together in the small logging town of
Hoquiam, Washington and immediately jumped into the world of
landlording, knowing absolutely nothing about what that really
meant—other than it sounded like a good idea.

(On a side note, that duplex, we soon discovered, had a very unique history. After
repeated complaints from our tenants about people taking photos of the property,
we learned that the duplex was the very first childhood home of Nirvana’s
frontman Kurt Cobain, who lived in both halves of the duplex during his first two
years of life. Sadly, this factoid does nothing for our business, but it’s a great
conversation starter at parties and in landlording books!)

Over the next decade, we continued to acquire more and more
rentals while continuing to manage them ourselves. We made every
mistake in the book (which you’ll hear about in the pages to come)
and learned painful lessons along the way. However, we also
discovered that landlording success is NOT a mystery. In fact, managing