Real estate can be an amazing wealth building tool, but it has a lot of challenges and easy traps for beginners to fall into. Fortunately, they are mostly avoidable if you are careful. I work in property management in addition to being a bookkeeper. The following is exactly what we do, including our actual screening requirements, application, lease, and addendum (skip to the end if you just need those documents, but this article should be very helpful for any beginner landlord, but even most with experience will probably get something out of this article).
When it comes to rental properties, the two most important things are your application process and your lease. Once the lease is signed, the landlord loses almost all control except for what made it into the lease. Because of this, it’s very important to have a very good lease and to be very selective about who you offer it to.
We list our properties on Craigslist (yes, it’s not perfect, but it’s still worth using since we do get good tenants from there), Facebook Marketplace, Zillow, and Apartments.com.
You want good photos of the outside and each room. You don’t want to make it look even better than it really is or leave things out because that’s just misleading people which at best attracts people who won’t really be interested once they see it, which is a huge waste of your time (not to mention theirs).
List all the positives (wood floors, washer and dryer included, etc.), bedroom and bathroom count, any extra amenities, etc. Don’t be afraid to list positive things about the area in general even if they have nothing to do with your property. This could be anything from “10 minutes to Interstate X for an easy commute” to “in the heart of wine country with seven wineries within a 20-minute drive”. It’s your job to sell the place, so do so.
We list our basic requirements (discussed below) in the ads to help people who actually read the ad know if it’s right for them.
Please see the section below on the showing, the same thing applies here about things you CAN’T say because they could be twisted to seem discriminatory even if they’re positive (such as “great for kids”).
Find comparable units in the area and see what they go for. Look on all the same platforms you’ll be listing the property, those are the properties others will be comparing your property against. Comps don’t have to be exact, just enough to know if yours should be more or less. So if you have a 2 bed, 1.5 bath townhouse, then a 3 bed townhouse is still a great comp and (unless there’s something really bad about it), it should be more than yours. When in doubt, don’t be afraid to go for more rent. It’s more money for you and self-selects better tenants. Worst case, you ask a little too much, don’t get responses, and lower the price a little until you get responses. If you get a lot of responses very quickly, you didn’t ask enough. Not only is this less money, but it will attract less desirable and less qualified applicants.
Our general screening requirements are:
- Good credit (generally at least 670, but we look at the report, not just the score)
- Income of at least 3x the rent (ideally net pay because deductions before they ever get the money doesn’t help them pay rent)
- No evictions in the last 5 years
- No bankruptcies in the last 5 years
- No pets (we make exceptions on a case-by-case basis)
- A good reference from their last landlord
Credit Reports – Your Best Friend
We have high/strict screening requirements so that we can make exceptions as we want to but can fall back on those requirements if we need to in order to refuse someone. Credit is more important than income. I’d rent to someone with good, little, or no credit and not quite the income because they’ve proven that even when things are tight, they keep their priorities straight. I would not rent to someone with bad credit and amazing income because they’ve proven that even when they have the means, they still can’t act enough like an adult to pay their bills. This means we look at the report, not just the score. A bad score can be a great tenant if it’s only due to lack of history and what is there is good. We also love to have someone with no credit because it means they’ve never gone out and bought things they can’t afford, so they have their priorities straight and are, generally, some of the best tenants you’ll find. So don’t miss out on diamonds in the rough just because they haven’t built a credit history yet.
Even with a good score, we might turn people down for things such as multiple things going to collections in the last 1-2 years (especially if it’s small stuff such as cable or cell phone bills). That’s why our actual requirement is “good credit”, we’ll turn down people with good scores but recent red flags and we’ll accept someone with a bad score as long as what’s there is good. To us, no credit at all is still good credit. If they claim to have no score, we still run the credit report no matter what, for all we know they’re lying or don’t know what all is on their report.
ESAs – Emotional Support Animals
For Emotional Support Animals (ESAs), we now just tell them: “ESAs aren’t a problem. However, due to all the fraud with them, we just give the paperwork to our lawyer. As long as everything’s good, we’re happy to have them. If there is any fraud, we let our lawyer handle it.” This strongly discourages anyone who knows their ESA is not legitimate (they won’t even submit the paperwork). I think we’ve only had one person submit paperwork after hearing this and we didn’t even have to verify it because it was obviously a legitimate ESA.
Phone Screening Before Scheduling a Showing
We only schedule showings by phone. During that call, we answer any questions they may have, but before we schedule the showing, we go through our big requirements. After each one, we pause until they respond. This is critical, it forces them to actually think and respond instead of just saying yes automatically. This is when they ask about pets, credit, etc. If they don’t know their credit, we tell them to check it and then call us back. We tell them they need to know it, make sure it’s accurate, and we don’t want to hit their credit if they can already know that they won’t qualify.
Phone Call to Confirm They’re on Their Way
We require them to call X minutes before the showing (X = however long it takes us to drive there). This way we never go for a showing just to have them not show up. This saves us a lot of time.
We always go in person. You can tell a lot about someone by how they interact with you, how they’re dressed, questions they ask, and their car (cracked windshield, driving on a spare tie, backseat full of trash means you need to be thorough about their credit and income, so make sure it’s good and legitimate). If they treat their own car that way, what do you think they’ll do to property that isn’t even theirs?
You are in sales during the showing. Be positive. Talk up the good things as you walk through in a positive and candid/casual way such as:
- “I actually like these townhouses. They feel more like a home than a regular apartment. Plus, there’s no one above or below you so you shouldn’t have any noise issues.”
- “The living room is nice and spacious.”
- “Nice wood floors, so they’re easy to clean.”
- “We take care of the outside, so you don’t have to worry about cutting grass or messing with any landscaping.”
Try to use the term “for you” when it makes sense. It reminds people that all of this is for them.
Add humor when you can. For example, “Just be warned, you guys are very close to the barbeque place down the street, you’ll smell it when the wind is right.” In this case, you’re lightening things with humor, but even more importantly, you just got them to picture themselves living there which can make the difference in them moving forward or not.
Don’t point out negative things, but if/when they come up, honestly downplay how bad they’ll be while still acknowledging them (agree with them or at least be agreeable, never disagree or correct them). If they are genuinely wrong, very politely provide the simple facts so they are informed, but don’t push it at all, you don’t want to come across as argumentative. If they have the right info but insist on being wrong, that’s their decision. A couple ways to honestly downplay how bad something is:
- “Yeah, the kitchen is a bit cozy, but we didn’t have anywhere else to put the washer and dryer and didn’t want you to not have them. But it keeps everything close and accessible.”
- “Parking is kind of limited, but there are two spaces for every townhouse and street parking available if you ever end up needing it. No one’s complained about never having a spot, so that’s good.”
Be VERY careful about discriminatory statements, even positive things can be twisted as discriminatory (and the world is only getting less friendly toward landlords, some groups actually pretend to be applicants simply to try to catch landlords being discriminatory). Even things such as “This is a great area for kids.” or “It’s one floor, so it’s great for retired folks.” can be considered discrimination even though they’re positive. So never say anything that could possibly imply anything good or bad for any protected class (race, gender, marital status, children, age, sexuality, etc.). Even hair color can be discrimination (yes, I had someone who wanted us to ban anyone with unnatural hair colors as if they can’t possibly pay rent or take care of the property).
This includes that you cannot refuse to rent someone because you’re worried about something. For example, I’ve seen multiple people over the years have a steep staircase or something that makes them nervous to rent to someone older or who has little kids. Well, it’s either safe or it’s not. If it’s not, you need to fix it and make it safe. If it’s safe, then it’s safe, even if it could be even safer. They have the opportunity to view the place, it’s up to them if they’re worried about it.
If you’re asked about crime in the area, you can’t say it’s safe or not. But you can say something truthful that still lets them know how things are. For example, “I’m not sure, you can look up a crime map online though. I know the cops are really strict about inspection stickers around here, so that tells me they don’t usually have anything more important to deal with. Plus, the police station is a couple of blocks away if it ever matters.”
We provide our application as a PDF on our website and will give them a printed copy at the showing. Once they submit it (usually by email). They need to provide at least two month’s of pay stubs for every adult to prove they meet the income requirement. It’s your job to make sure you’re not running credit reports (which lowers their credit) on people who don’t even qualify for other reasons.
We charge $35 per adult which covers our cost to run the credit and background check. They can pay by check or cash at the showing, but for most we send an invoice from QuickBooks or Square so they can quickly pay however they want. Everyone 18 and older (regardless of relation or who they think will be the “main person” in charge or paying) needs to go through the whole application process because even if someone isn’t the “main tenant” in their view, people could bail out and you could end up with that person as the only tenant in the future, so you want to have done your due diligence. If they ask about it, say “We have to do the same for everyone. Just like later your neighbor could let her boyfriend move in, we need to do a credit and background check and make sure he didn’t just get out of prison or something.”
We use TenantBackgroundSearch.com for our credit and background checks. We use the second most expensive option (we tried the most expensive but didn’t find it any more helpful).
Once you have everything, then you can do your final review and make sure they actually qualify. Don’t rush. Don’t make exceptions. Don’t consider sob stories. People very rarely take responsibility for their own actions. If you rush because you’re afraid of vacancy, you will have much bigger problems later.
We keep showing and processing applications until someone signs and pays a lease. I don’t care how confidently they tell me they’re going to take it, that means nothing until they’ve signed and paid. I’m not going to hold a property in any way just to lose days with someone else or lose that other applicant entirely.
If they are approved but someone else beats them to a property, we consider them approved for 30 days for any of our properties they meet the income requirement for. So if we have another unit that someone’s moving out of or is finishing up repairs, they can be first in line and pre-approved.
Reference from Previous Landlord – A Complete Waste of Time
We do not check references from previous landlords, it’s a waste of time. Only one of a few things happens:
- They’re a good tenant and the landlord says so, so you get a good reference.
- They’re a bad tenant but the landlord wants to get rid of them, so you get a good reference.
- They’re a bad tenant and know it, so they have their friend pretend to be the landlord and you get a good reference.
- They’re too dumb to know they’re bad and the landlord is too dumb to get rid of them so you actually get a bad reference (this almost never happens).
So ask for the reference on the application but don’t waste time actually checking them. Focus on credit and income verification. We still require a good reference because this self-selects out people who know their last landlord won’t give them a good reference.
The Lease – Absolutely Make or Break Critical
The lease is critical. We found a standard lease for Virginia and put it in Word. Then we found a few leases from actual places in Virginia and combed through them, adding everything the standard lease didn’t have. Then we added a few things over the years as needed. Now we have a great lease and have never lost an eviction (which we almost never have to do now due to our good screening).
The lease is your only chance to add any rules you want the tenant to follow. Once it’s signed, that’s it, you can’t add or change anything unless they agree to it (which they won’t unless they get something out of it too). There are way too many important things to list out here which is one reason we simply offer our lease for anyone to read, use, steal parts from, etc. You can find it at the end of the this article.
List every single person on the lease and use the term “jointly and severally” (such as “Tenant: John Smith, John Doe, and Jane Doe, jointly and severally”). This makes them all fully liable for all rent, damages, etc. This can help you a lot later on because if they’re on the hook for everything, they’ll suddenly know how to reach the others when needed (as opposed to playing dumb like they have no way of contacting people they lived with). Also, any children should be listed by name as occupants.
You do not need an official signature software program to accept signatures. Our lease explicitly states that electronic signatures of any kind are considered original and are fully binding. In contract law, even if a contract isn’t signed, if both parties move forward as if it were, then it is binding. Basically, someone can’t agree to the lease, pay the first month’s rent and deposit according to the lease, move in, and then stand in front of a judge pretending they have no idea what lease you’re talking about. So we send the lease with our signature already on it and they sign and send it back. We sign it first because otherwise they could change something and we could blindly sign it (and it would hold up in court if they did, it’s happened to big companies before).
We provide our blank lease for them to review in advance, but we don’t offer the signed one until they pay it too. The last thing you want is a binding lease but no payment yet. For this reason, the signed lease, payment, and keys are all exchanged at the same time.
Be aware that although every state’s laws vary, most of the laws are about what can be rented, defaults for when there isn’t a lease or the lease doesn’t say, and the eviction process. The actual lease can be almost identical from one state to the next. Things that may affect it are state laws affecting how much your late fee can be, how much the deposit can be, if there’s a required minimum grace period, etc. And keep in mind, the standard leases you get from realtor associations or the state leave lots of holes (look through the rules in ours and look at their default leases to see what I mean). So although ours is for Virginia, there is still a lot about it I would use (and it’s not just rules, other parts such as the severability clause are so much better than you’ll probably get out of default leases).
Other General Tips
We stopped doing any carpet and replace all flooring with vinyl plank. It’s very durable, doesn’t swell up like the cheapo wood flooring, and looks great (we usually do a medium to dark wood). For stairs, we try to just go down to the wood and refinish it nicely. The only exception to the flooring is bathrooms where we do sheet vinyl and keep it very light (close to white) to keep the room bright and so it won’t feel cramped.
We do the same colors in all our units so we don’t have to track tons of different colors everywhere. We do a light gray with white trim. We’ve found that even people who don’t love it, don’t hate it. If we tried to bring in color, some people would definitely like it more, but it would also turn others off. By keeping it neutral, most people like if not love it and their decor can bring the life and character to the property.
Washer and Dryer
We provide them in all units now. This greatly helped us attract better tenants, bring in a little more rent, and helps them rent faster. I know some landlords don’t want to, but that’s dumb. Renters don’t have major appliances. Even in areas where this isn’t the norm (for some reason), imagine how much your property will stand out just by providing a washer and dryer when others aren’t. If you can’t afford to fix a washer or dryer as needed, then you can’t afford to fix the stove or refrigerator either in which case you shouldn’t be a landlord in the first place. Don’t be a slumlord. Unless you have laundry provided in another room (such as a common room), provide washers and dryers.
You definitely want to do routine inspections. In our experience, one of the biggest issues common to landlords with horror stories is that they sat back and collected the check and never stepped foot in the property for years. Meanwhile, the tenants weren’t taking care of it, never made maintenance requests because they didn’t want anyone seeing the condition, etc. We try to go in every three months, but will let it go if we know they’re good (we’ve inspected many times without issues, they make reasonable maintenance requests as needed, etc.).
Inspections while tenants are there aren’t as thorough. We check the air filter, smoke detectors, HVAC drain, and take a general look around for damage, lease violations such as extra people or pets, etc.
We stopped using locking handles. They’re extremely easy to break into so they offer no real protection. All they do is create the chance for someone to lock themselves out, which we don’t want to have to deal with.
We use either old school locks that a locksmith changes or digital ones we can change remotely as needed (but never while a tenant is there without telling them new codes, locking someone out is very illegal in almost all if not all states).
Change the locks after every single tenant. The last thing you want is for someone to have made a copy and come back a year later to burglarize the place, or worse (rape, murder, etc.). The last thing you want is to be standing in front of a judge saying “Well, we wanted to save money on the locksmith, we didn’t think it would be a problem.”
Use email, not text messaging. Our lease specifies that all communications must be via email, even those specified as “in writing”. Email is much more professional and gives you a much better record if things go bad in the future.
We have a separate email just for maintenance requests. This keeps it easier to sort through and prioritize them. They are required to also call if it’s an emergency (which needs to be clearly defined in the lease, otherwise everything’s an emergency). By law, things that affect habitability need to be addressed as quickly as possible (this doesn’t necessarily mean in the middle of the night, but as fast as you reasonably can).
Landlord Horror Stories are (Almost) Always the Landlord’s Fault
Almost every nightmare story starts with something the landlord did wrong. Seriously, I know we hate to admit it, but there’s almost always something we could have done better. It’s generally one of four issues:
- The landlord didn’t screen properly
- The landlord used a lease that isn’t as good as it should be
- The landlord didn’t enforce the lease
- The landlord never inspected
Even when we don’t want to admit it, if we go back to the application for a problem tenant, 95% of the time we can find something we overlooked. So whether you missed it, or you noticed it but didn’t give it the weight you should have, look back and figure out what you missed. You have to do this to avoid making the same mistake again. Any time you have an issue, go back and find what you missed. It’s okay to make a mistake, but don’t make the same mistake twice!
You should always use an attorney for a lease, every state has different laws and they may have things that ours is missing (which we’d love to know about). However, that said, most state laws focus on the bigger picture. They usually provide defaults in case there isn’t a written lease and regulate exactly how and for what reasons tenants can be evicted. They also provide minimum standards for landlords (such as defining habitability). So, most of the things in a lease don’t actually vary from state to state nearly as much as people make it seem. Plus, our lease has a severability clause which is there specifically to say that anything that isn’t legally enforceable is only altered as needed to be legally enforceable (as opposed to voiding that clause entirely). One great example is a grace period. Our lease has no grace period, but if you used this lease in a state that required at least five days, then by the lease the tenant would have the required five-day grace period. This is why I kind of laugh when people freak out when I offer a Virginia lease for other states, it’s still good even if there are changes that could be made for some states. But still, use an attorney, legal stuff is too important and potentially expensive to trust ANY lease. And most standard leases for any state will fall short and leave lots of holes even if you get them from a realtor, lawyer, or property management company (just check the rules section in our lease to see what I mean, you won’t find a lot if not most of those rules in almost any other lease).
I can’t guarantee all the terms are valid in your area, even in Virginia. The lease does specify Commonwealth of Virginia on page 12 under “Applicable Law and Venue”. Read it carefully and feel free to ask me any questions you get about it.
As you can see, I also do bookkeeping, which I do completely remotely. I have over 10 years of experience with all sorts of businesses. So if you found this helpful, please keep me in mind if you or anyone you know needs good bookkeeping. I don’t just plug through transactions and reconciliations, I’m more of a “small business CFO” to help people grow their business in a healthy, sustainable way.
Please note that I do not have an SSL certificate for this website. I’ve been having issues with GoDaddy (hence the Gmail email instead of my own) and I can’t bear to reward them by paying for the SSL right now. So if you get a security alert when you try to do download the documents below, that’s why. They’re safe, they’re just Word files.
NOTE: The three links below are Word documents and won’t seem to open in Chrome (thanks Google). So if you have issues, please try opening them in Firefox (other browsers may work too, but that’s the one I checked and it worked for me). Or just email me through this site and I’ll be happy to send them as attachments.
Note: As of July 2020, Virginia now requires the landlord and tenants to sign the Virginia Statement of Tenant Rights and Responsibilities. This should be signed at the same time as the lease. You could add a statement to your lease stating that the lease isn’t valid until this form is signed, but that’s up to you.
Also in Virginia now you need to manually test all smoke detectors at least annually. They require the form in the link be filled out at the time. We do this every inspection anyway (which we do quarterly in most cases). Still important to know. Landlord Certification Form
Always consult the actual Virginia Landlord Tenant Act. Other resources may not always reflect the most recent changes to the law (including articles just like this). So always confirm before taking action based on what you hear from any other source.