Advice for new landlord?

Question

Hi everyone!I just had my offer accepted on my first rental property (3 family) and I am really excited and nervous! The house has two units currently rented on a month to month basis and the other unit is empty (was owner occupied). My agent is really great and covering all of the official details like inspection and I have a lawyer for leases, etc., but I was wondering if anyone has any "gee I wish I had thought of this earlier" tips for someone about to be a newbie landlord. For example, I was thinking maybe I should wait to have people sign any kind of lease until the summer so I don't have all three units turning over in November (not the best rental season).Thanks everyone and thanks to the BP community for inspiring me to take the plunge!Lisa

Jim Cummings · Answer

@Lisa Kattenhorn. Work on getting the Vacant unit leased ASAP . If the best turnover time is late Spring - Summer, I would suggest you work toward having some variance in the leases. For Example, rather than all leasing turning over in June, set one up as a April turnover, and the other as June. The idea being to spread out your turnover, so you wouldn't theoretically have all 3 units vacant at the same time.

Greg Scott · Answer

@Lisa KattenhornSetting rents is a balancing act.Of course, if you are at or above market, raising rents may not make sense at all.Assuming you are below market, raising rents too fast will create vacancy which kills cash flow. Raising rents too slowly hurts your long-term cashflow. In a SFR, you have to make a careful call.In a situation like an apartment it is a bit easier because you are dealing with a larger number of units. For example, say you bought a 100 unit apartment that is full, but nobody has a lease. You may decide you want to raise rents $50 because everyone is $100 below market. Let's also assume you want to keep all your tenants. The first month you could ask some of the tenants to sign new leases at +$50. If more move out than you wanted, you become less aggressive.

Lisa Kattenhorn · Answer

@Ray Harrell You know, I was thinking the same thing. I am not sure I really see the benefits of a full year lease because I don't think most tenants really honor it at the end of the day. I think the laws here require you to rent the apartment as quickly as possible to release the tenant if they want to end the lease anyway, so you aren't getting more than maybe an extra month of rent from them. But, you ARE stuck with them if you don't like them. And yes, I definitely know they were probably on their best behavior, although I was really surprised at the number of places I went to see where the tenants were really rude and not at all people I would want to rent to. At least these tenants were trying.

Ray Harrell · Answer

Also consider that a full year lease really only obligates YOU. Tenants who want/need to move will move. The chances of them paying out the rest of the lease are SLIM!Quick poll...how many landlords on here whose tenants broke the lease actually paid through the end of the lease??It just doesn't happen often, if at all.Another thing, don't think just because your "tenants" presented "great" for you during viewing that they are really like that. Owners and tenants work together so that that the property shows well during the sale process. Then things go back to normal. So those dream tenants that you adore and want to keep may change as soon as you close. Not trying to scare you, but if it happens don't be surprised.And my other piece of advice...although some here may agree, never lease a unit to a new tenant before the previous tenant moves out. You will find yourself in legal trouble should the current tenant decide they aren't ready to go, or their new place isn't ready but you have new tenants outside with a moving truck. PLAN FOR THE WORST SITUATIONS...be grateful when those situations don't happen.

Lisa Kattenhorn · Answer

@Greg Scott Thanks so much for the input! I misspoke in my first post in that I originally meant waiting to put the tenants on a full year lease. But yes, you are definitely correct that I will want some sort of lease in place asap. Staggering it definitely makes sense. The rents are definitely below market currently, however the property can still generate some nice income where they currently are. Do you recommend making the jump to market prices right away or easing it in more gradually? The current tenants seem great so I am hoping to retain them for the time being.@Mike McCarthy Thanks for the tip. I will check it out! The local tenant laws are definitely going to be my reading for this weekend.

Mike McCarthy · Answer

I highly recommend the BP book on managing rental properties (yellow cover). It will answer a lot of questions including the ones you don’t realize you should be asking. Be sure to read up on your local/city/state landlord tenant laws. There is a lot of variation state to state and you will keep yourself out of hot water by understanding what you can and can’t do. I’d also advise against trying to sync your leases. I wouldn’t want to deal with finding tenants at the same time if at all possible. Good luck on your journey!

Greg Scott · Answer

Lisa:There is a lot to learn. If you don't have one already, seek out a mentor that is a seasoned investor. If you can't find that, maybe you can piecemeal it. For example, find a friend that works in property management to answer property management questions. Find someone else for rehab advice.Regarding your specific question, don't wait to put your tenants on a lease. You want to set the rules and ensure you have a strong, legal lease. That said, nobody says a lease has to be 12 months. (Unless your community has some strange rules.) Sign them up to a 6, 8, or 10 month lease. Stagger the end dates so you never find yourself with all three units going vacant at once.Another benefit of having them sign a new lease.... you can raise the rents if they are below market and immediately give yourself an enhanced return on investment.Good luck