Whether you plan to turn your home into a rental property, or if you purchased a property specially as a rental property, the steps for finding a tenant are the same. You’ll need to:
- Check local laws.
- Get yourself the right paperwork.
- Price the property to appeal to renters.
- Vet the people who want to move in.
Regardless of whether you manage the rental yourself or hire a professional real estate manager, you’ll earn top dollar from your investment property by following these 10 steps:
1. Make sure you’re allowed to rent the property.
If you live in a homeowners association, check for rental restrictions and find out if local government requires a rental license or inspection. A professional property manager will know the local laws, but may not know your HOA’s rules.
2. Know the local eviction laws.
Talk to a real estate attorney or your professional property manager to find out how the eviction process works in your area. In some places, you can remove a non-paying tenant within a month, but in others, it can take months and months — during which you’re not being paid.
3. Establish the rent.
Do market research to set your rental price. See what similar homes are renting for on Craigslist, in the local newspaper, and on the local multiple listing service. If you allow pets, compare pet-friendly properties’ prices. If you have a REALTOR® managing your rental, she will show you comparable prices.
Use the HouseLogic downloadable rental home expense worksheet to calculate your expenses. The difference is your estimated rental income.
4. Do your rental home paperwork.
You’ll need to set up these finance and legal items before you rent your home:
- Apply for any rental licenses your local jurisdiction or community association requires.
- Open a savings account to hold the security deposit. Most states require deposits be held in a separate account rather than an account where you keep your own money.
- Purchase a landlord’s insurance policy.
If you’re doing your own property management:
- Open an account with a company that does credit and criminal history background checks on prospective tenants.
- Have a local real estate attorney draft a lease and a rental application for you.
- Set the minimum credit score, credit history, and income you’ll take. In an upscale community, you can demand a credit score of 720 or higher and no late payments (that’s stellar credit), but in a low-income area where tenants are often unskilled laborers and therefore more at risk of unemployment, expect to reduce that to 620 and no late-rent payments.
The tenants should have income of about three times the rent. So if your place rents for $1,000 a month, look for at least $3,000 a month in income.
5. Photograph your home with your furniture in it.
Stage and take pictures of the rooms before the first tenants move in. That way, if your current tenants have awful decorating taste or are clutter bugs, you can use your pictures to show your house in its best condition when searching for new tenants.
6. Advertise everywhere you can.
- If you’re in a college town, contact the university’s housing office.
- If there’s a large employer within walking distance of your home, contact its employee relocation division to see if it posts rental listings.
- Sites such as Craigslist offer free ads, but watch out for check scammers who answer your ad along with the legit renters. A REALTOR® can help you post your property in the local multiple listing service.
These last four steps apply if you’re showing the property yourself, rather than having a REALTOR® find tenants for your rental:
7. Group showings into one or two days per week.
When you respond to prospective tenants, showing the house every day wastes your time and annoys your current tenants. Having multiple groups viewing the property at the same time will make prospective tenants realize they could lose the place if they don’t make an offer.
A Friday night showing gives you a jump on the landlords doing Saturday showings. Follow up with a Sunday showing to catch everyone who couldn’t make Friday night.
8. Get your deposit ducks in a row.
Get an application, a deposit check equal to at least one month’s rent, and a signed lease from everyone who wants to rent your place. Process them in the order in which you received them. You’ll cash the check and sign the lease back to them only after their background and credit checks come back clean and you’ve verified income and employment.
Anyone who won’t give you a deposit check isn’t a serious applicant, so don’t waste your time vetting them.
9. Verify everything the tenant says on the application.
You’ll definitely want to weed out prospective tenants who give you a cell number that’s answered by a friend pretending to be the applicant’s employer or landlord.
- Look up the phone number for the employer and verify employment and income with someone in human resources.
- If you can, call your prospective tenants’ previous landlord — not the one they currently have. If they’re bad tenants, their current landlord may tell you they’re wonderful — just to get rid of them.
- Call the bank branch listed on the deposit check and verify that there are sufficient funds in the account to cover the check.
10. Take the first tenant that meets your income and credit requirements.
If you don’t, you risk violating Fair Housing Laws. The credit checking company will give you the paperwork you must send to anyone who fails the credit check. Call everyone else who wanted your house promptly so they can move on.