2 questions from New Landlord about to rent first property

[Charles M.]

Hi, wife and I are about to list for rent our first rental property (townhome), we are all in at about $225k. Can you help with 3 questions?

1.  Where do we get best lease that will hold up in court and protect our interests. Biggerpockets and other oniline sources have state specific for $100, but we spoke to RE estate attorney who has one for $2,000 that he has litigated over the years and it holds up very well, State is GA.  Do online generic leases hold up well if you have to litigate?

2. As far as rent, due to low rental availability there is very little available so market comps few and far between. Rentals are rising so should we start high and go lower if needed or just price inline with general market.

3. For tenant screening, we want high quality person and can wait to get one, but is our criteria too strict:  740 credit score, 2 month sec deposit, 37% max debt/income ratio? Unit is basically brand new in sought after area and we are out-of-state investors.

Thanks

[Jody Sperling]

Everyone has a different risk tolerance, so bear that in mind and choose your path based on yours. I will say your questions sketch a risk tolerance that to me is extreme in both directions.

1. The BiggerPockets lease agreements have undoubtably held up in court. SO many people use them that if they didn't, we'd know it loud and clear. Don't invest an unnecessary $1900.

2. View your properties as a business. Rent at market price. You'll get the best candidate pool for the vacancy. Yes, you may be able to go high, but if you miss a week, two weeks, or even a month trying to fish for more rent, the cost of vacancy will out-weight getting it filled quickly at the lower, competitive pricing.

3a. Your expectations are way too high. There's typically a reason folks are renting and marginal credit scores and low cash-on-hand are among the top three. If a renter can come up with three-months worth of cost, they can probably afford to buy a starter home. Moreover, you'll want to look at local laws if you ask for 2-months deposit, as that may not be legal, but even if it is, you'll extremely limit your tenant pool by requesting that much money. It's unnecessary if you find good renters anyway.

3b. You should never have issues if you aim for 650 or higher, especially because the most important elements of a tenant are going to be employment history and eviction history. As long as your tenant has a history of strong employment and no evictions, with a decent credit score, you'll likely be okay. I do focus on previous rent experience too. But if you want a 740 credit score, you'd decline me! I simply move too fast for banks, and I'm smart with debt, so if I can ride an interest-free credit card balance for 18 months, you bet I will. But that all hurts my credit score, which is hovering around 700. That said, I've never missed a payment, failed to pay in full, or put myself in a position of debt where I can't afford to pay off in full.

Be smart, but don't get greedy. Best of luck!