All Forum Posts by: Joe Splitrock

For years I never charged an application fee. I was concerned that taking money from someone would make it harder if I denied them, which it could. If you deny someone after taking their money, they have more invested than if it was free to apply. 

Over time I noticed I was getting lots of applications from unqualified people. I determined some people just apply everywhere they can, hoping someone will accept them. If you charge a fee, those people will go away. Better yet, if you say you charge a fee in your advertisement, they will probably not even call you.

Now my process for applications is to review the application before taking their money just to make sure they look good on paper. If they don't have two references or sufficient income, I reject them and give them their money back. I don't incur any cost beyond time, so no big deal. I am not trying to profit from applications.

I charge $35 per adult and I tell prospective tenants that after their application is accepted, I will credit the fee to their first months rent. 

You will get objections to the fee and you may get less calls. Just keep in mind you are looking for quality and not quantity. 

Hi Barry,

Welcome to the forum. I am in the Sioux Falls area. I wish you best of luck. I got started myself after reading Rich Dad Poor Dad. It is a great book to show you why investing in rental property is a good idea. BiggerPockets is a great resource to show you how to invest in real estate.

Joe

My parents painted cedar in their basement in one room and it turned out nice - after several coats of paint. My point being that you may find it takes more than one coat and more than $500 to do the job. My personal opinion, I think it looks nice and I wouldn't paint it. Every part of the country has their own standards of what people like, so I would default to what your agent says. One suggestion is to have your agent bring other people from their office to look at it and give their opinion. Experienced agents are going to know what buyers are looking for. 

I am going to give you a Dr. Phil reality check.

Your commentary on the situation shows inexperience. The fact that you had no idea charging $40 a day is unreasonable when someone owes you $25 is one example. Keep in mind your property manager has more experience in this business than you, which I assume is why you hired them. I am not saying they are a good or bad property manager - I don't have enough information to form an opinion. Still, my recommendation is to get rid of your property manager and manage the property yourself. Then you can learn through experience. Only after successfully managing your own property, will you gain the right perspective.  

You made the comment that a 40+ year old woman making $75K cannot pay $5, so she has big problems. Many renters make good income, yet barely come up with rent each month. Income and money management are two different things. She obviously is a poor money manager and/or has problems that have financially drained her. That is why she is renting! Keep in mind that tenants who barely scrape by will often be long-term tenants. (Low vacancy = more profit.) Would you rather have a 5 year tenant that pays a $40 late fee once a year or 1 year tenants that leave you with a 1-2 month vacancy every year? Yearly vacancy over 5 years would cost you $5000-$10,000 in rents plus fees and rehab costs. 

I would forgive the $5 she owes and when the lease renews, modify the late fee to something reasonable. I charge $25 on the 6th of the month, then add $5 per day. My average lease is a monthly payment of $1100. That works out to around 13% of the rent per month in late fees. Check in your local area what is acceptable. (Your late fee is currently 100% per month which is the highest I have ever heard of).

You should prepare yourself for worse situations in the future if you continue to invest in rental property. 

Yes, CO alarm is what have installed in my home. Hopefully the point of my post was valid regardless. Just because you cannot see it, doesn't mean it cannot harm you.

Lung cancer is the number one cancer leading to death. Radon is the number two cause of lung cancer behind smoking. It is colorless and odorless. It exists in many areas where granite is underground. It can easily be mitigated. I had my home tested shortly after it was built and we registered high levels. When it comes to the safety of my family I would be insane to ignore this very real threat, so I put in a radon mitigation system. My levels are good now and the cost is near nothing to run the system. I also have a C02 alarm, smoke detectors, severe weather alarm and locks on my doors.

I always require tenants to pay the bills, not only is it extra work to bill them, but there is risk of them not paying the bills. There could be some legal concerns with reselling utilities especially if you charge markup or late fees. Gas and electric in particular are highly regulated, so I would stay away from that.

I did have a situation with my first tenant where she couldn't put gas in her name due to some outstanding balances (red flag). I changed her rent agreement to include gas and increased the monthly rent a set amount. I would drive by the house in winter and see the upstairs windows open. She said it got hot inside the house. Since that experience I have never paid a single utility bill for any tenant.

I am not sure you could do a contract for deed because you cannot sell something you don't own. The bank technically owns it and their loan needs to be satisfied before the title can transfer. 

I would consider two options depending on your motivation. If you are ambitious and willing to struggle through, I would rehab it enough to rent it. Given that you let it sit for a year, leads me to believe you are in over your head and need to walk away. In that case try to find a buyer willing to pay more than you owe.

If you want to go the ambitious route, they you need a true estimate of cost to make it rent-ready. That means taking care of any safety issues and making it presentable enough that someone will rent it. Try to save whatever you can. It is ok if things look dated, but make sure everything is safe, clean and operational. It is hard to know for sure from your description how bad it is, so this could be cost prohibitive. My experience is that old buildings can be a money pit, so I have gotten rid of mine. That being said, my first rental was old and had all the problems you described, still I rented it and made tons of money.

Every day it sits, it will degrade more and you will keep paying money every month. Vacant houses are trouble waiting to happen. Don't let it sit another year. Either rehab and get someone living in it or sell it quickly. 

Anyone on this forum contacting you knows how much you owe, how much work is needed, how much you think it is worth and how much cash you have. All your cards are on the table. 

For me it comes down to if they have the ability to pay and if they are responsible to pay. 

Ability to pay means they have enough income to cover rent, utilities and other bills including car payments and collections. I do the math on their expenses and see if it is a workable budget. Another indicator is how much they are currently paying on rent. You have to consider how much extra your place is it going to cost. People routinely try to rent places they cannot afford, so if they need to spend $400 extra each month for your house, ask them where that money comes from. Maybe they got a raise or their wife just went back to work after having a kid. Maybe they paid off their car. The numbers have to work.

Responsible to pay means they have a proven history of paying their bills, specifically rent on time. I require two rental references, current and previous. As others pointed out, you need to be careful with current reference. Some landlords will give good references to bad tenants to get them out of their property. Previous land lord is your best reference because they will be honest. Good credit score is also an indicator of payment history, but some people with bad credit always pay rent on time. 

It seems I rent to two types of people. There are some that are very qualified, pay rent on time and usually end up leaving in a year or two. The other type is less qualified, struggles occasionally for rent and stays in the property for many years. All things being equal I would take the more qualified person. Although I don't like turn over, I sleep better knowing I will always get my rent. 

As far as feeling uncomfortable turning someone down, the worst thing you can do is string someone along or not call them back. Be honest with people, so they can move on. Just tell them, "we are not able to approve your application because you do not meet our criteria". Do it over the phone and avoid anything written unless required by state law. Most likely if you are denying them, it is not the first time they have been rejected. Application fees help at weeding out the bad ones too.

Even if it was legal, I would refuse because that is a safety hazard. If there was a fire they would be trapped inside. Explain the safety concern and look for another solution to their security concern. One option may be smash proof window film. Ultimately it is not too difficult for someone to break in if they wanted to, so this is more about making your tenant feel safe.