Welcome to the StarPoint Tenant Screening Blog. This blog is dedicated to sharing valuable and helpful info with property managers and individual landlords about tenant screening, state tenant laws, useful forms and more.
If you’re renting out a property, thorough tenant screening is a must. A bad tenant is not only a hassle to deal with, but can also cost you thousands of dollars.
Take a look at the true cost of eviction to see why you should always conduct tenant background screening.
If you need to evict a tenant, it won’t happen overnight. Eviction is a lengthy legal process, and it typically takes about 2 to 3 months from when you file the paperwork to when the eviction actually occurs. How much do you charge for rent on the unit? Multiply that by 2 or 3 and that’s about how much money you’ll already be out, and keep in mind that the process of evicting a tenant could take even longer.
Going to court isn’t free, and you can anticipate it costing about $100 to $300. If you need an attorney, and you will if you want to make this process go as quickly and efficiently as possible, those legal fees could be anywhere from $200 to $750.
Once the tenant is gone, you need to get the unit ready to rent again. That will likely run you between $500 and $2,000. Of course, if you had a bad tenant, there’s no telling how much damage they might have done. There’s no shortage of landlord horror stories about tenants who damaged walls, ruined appliances or let their pets destroy a unit. And don’t think that putting a “no pets” clause in the lease will always protect you, as plenty of tenants have chosen to ignore those kinds of restrictions.
There’s no telling how long the unit will be on the market after you put it up for rent again, but you should expect to lose about 1 month of revenue. You can also expect getting it rented to cost you about half a month’s rent, as you may need to provide concessions to a new tenant or advertise the unit. Even if you don’t do either and simply advertise your unit in free classified ads, you’ll still be losing money on the time you spend showing the unit to prospective tenants.
So, how much are you spending for all of that? Let’s say that you have a unit renting for $1,000 per month, you’re able to keep your costs to the low end of these estimates throughout the process and you find a new tenant within a month. You’ll be looking at:
$2,000 in lost rent while evicting the bad tenant
$1,000 in lost rent while finding a new tenant
$500 in make ready costs
$500 spent on finding a new tenant
$200 in attorney legal fees
$100 in court costs
That all comes out to a grand total of $4,300, which will take you over 4 months just to make back. And that’s if you’re able to minimize your costs. It’s obvious that each bad tenant comes at a huge price.
What is the Cost of Tenant Screening?
You can have a thorough credit check completed for as little as $10.95. That screening will provide information on the prospective tenant’s financial history, including their credit score and any bankruptcies, their payment history and verification on their ID.
It doesn’t cost much to screen a prospective tenant, especially compared to the cost of a bad tenant. Go through the screening process with any tenant you’re considering to give yourself peace of mind and minimize your risk.
Don’t let screening a tenant intimidate you. Follow the steps on this infographic and use StarPoint Screenings Free tenant screening forms to help you get the job done today! Tenant Screening can be one of the smartest steps you take in protecting your investment and making residual income.
Below you will find the top ten deductions for landlords that will decrease their tax liability. Before claiming any of these deductions, make sure to have receipts and files to back them up.
Interest can be one of the biggest tax deductions for a landlord. They can deduct interest from a mortgage loan or credit card interest from using the credit card for repairs on the property. Mortgage Interest (primary & secondary), HELOC Interest, Credit card interest on purchases or improvements on the property, and Mortgage Points to purchase or refinance the property all fall into this category.
You will not be able to do this in the year the property was bought but you can do it the following years when the property actually depreciates. The value of the structure and the value of the improvements can both be depreciated.
Repair costs are deductible in the year that they are done. The repairs have to be needed and the cost must be within reason. Repairs can also include any effort to maintain the current condition of the property. The type of repairs that fall into this category would be painting, plumbing, AC and Heat repairs, fixture repairs, fixing floors or the roof, and fixing windows. You can also deduct the Labor Costs for conducting these repairs.
4. Local Travel
You can deduct the mileage you incur from your rental activities such as going to the property, collect rent, dealing with a renters problems, and even going to the hardware store.
5. Long Distance Travel
Traveling a long distance for you rental duties can also be deducted. You deduct such things as airline fares, car rentals, taxis, uber, gas, 50 % of meals, hotel bills and more. You have to document your trip carefully as the IRS will look closely at this deduction.
6. Home Office
While meeting certain requirements, you home office and/or workspace used for your rental activities can be deducted. You can also depreciate certain equipment used in you rental business space including ink, paper, pens, rental software, legal documents, phone and internet, and the square footage of the home office. Be careful as that IRS says that one of the most commonly audited deductions is a home office.
7. Employees and Independent Contractors
Whether an employee or an independent contractor, you can claim their wages as a tax deduction as long as it is related to your rental business expenses.
8. Casualty and Theft Losses
If you property is damaged or destroyed by a flood or fire per se, you can deduct part but not all of the loss. This is dependent on whether you had insurance or not.
The premiums that you pay for almost any type of insurance related to you rental business can be deducted. You may also deduct your employees health and workers compensation insurance.
10. Legal and Professional Services
You can deduct legal and professional service fees. These fees are known as operating expenses and can be deducted as long as they are related to your rental business. These fees can include tax preparation and software, property management services or software, court filing fees and accounting advice.
Rental Property Forecast For 2017
Real estate analysts are still measuring the “Trump Effect” and the millennial effect on US housing and rentals. Most experts feel the housing market is “under-supplied” and that mortgage rates will remain favorable despite interest rate hikes from the Federal Reserve. And, with soft supply, the rental market is expected to remain strong, especially in busy metropolitan areas.
With Trump’s emphasis on growing the economy and implementing a more favorable tax structure, American millennials will have more money to spend. Zillow estimates that rents in metro areas will continue to climb another 1.7 percent in 2017, on par with 2016 growth. (http://www.thefiscaltimes.com/2016/11/22/10-Real-Estate-Trends-Watch-2017).
At the same time, Zillow projects home values will increase by 3.6 percent in 2017 and 2.97 percent in 2018. However, more take home pay may not translate to more ready, willing and able buyers. Analysts foresee many millennials packing their bags and moving away from their parents homes in 2017. This is expected to create more demand for rentals in 2017.
The Impact of Short Term Rentals
Short term rental demand through Airbnb is strong. However, a majority of analysts feel the impact of short term rental property on the overall housing market is negligible. However, the convenience of whole home or one room rentals is expected to have an impact on the hotel industry.
Presently, Zillow reports the cost of rental property in major metro areas like LA or NY can cost about 40 percent of the tenant’s income (http://www.zillow.com/research/short-term-home-rentals-zhpe-13927/). President Elect Trump may not have a solution for the rising cost of rental properties in large metro markets but a new income tax policy will be welcomed by big city tenants.
Millennials Will Drive Rental Supply and Demand
Millennials are expected to significantly impact demand fro housing and rental units. More millennials will apply for mortgages in 2017 than did in 2016. But, more millennials will also start living independently and increase demand for rental property.
As the President Elect promised more jobs and seems prepared to invest in the country’s lagging infrastructure, new jobs means more income for millennials. However, Zillow also predicts that many millennials will be willing to travel further to get to work. Look for growth in the suburban housing and rental market in 2017.
According to Forbes, the housing market only added 1.1 million units in 2016. However, 900,000 of those units were from previously vacant housing. Expect to see significant housing and rental unit construction in 2017.
New rental occupancy rates will still be affected by population growth, which accounts for 50 percent of demand. Adult children moving from their parent’s basements and high divorce rates will also contribute to the number of singles looking for rental units in 2017. These groups are more interested in housing for one or two years than in long term, more permanent housing investment (http://www.forbes.com/sites/billconerly/2015/12/10/housing-forecast-2016-2017-two-years-of-growth/#7505c0b37add).
Higher Rental Demand
Rental market prices will increase slowly. But, The Fiscal Times reports that 40 percent of Americans prefer to rent rather than buy. This demand will drive construction companies to invest in and build new apartment complexes in 2017 (http://www.thefiscaltimes.com/2016/11/22/10-Real-Estate-Trends-Watch-2017).
Again, President elect Trump’s new immigration policy may have a negative impact on the building industry. If labor costs rise, rents will also increase.
Zillow also predicts that more Americans will drive to work. This is a reversal of the housing trend of the past decade. With 80 million millennials considering their housing choices, they will not only drive rentals in 2017, but they will be driving or using public transport to get to work. The bottom line is that as our millennials get on their financial feet, housing and rental marketplaces will see increased demand which means prices and values will rise in 2017!
Purchasing a rental home is a big decision that requires a lot of planning and research. Aside from the big things tenants focus on, such as location, crime rate, job market, and local school district, it is the extra conveniences that make a property stand out. The features and amenities in a rental home create the highest potential return on investment.
Like all houses, there will always be something that someone feels should be replaced, fixed, or updated. While installing high-end molding may be a top priority for the owner, tenants care more about the condition of the appliances. Upgrading the current out-of-style washer and dryer to the newest model can easily increase rent by $100. Even though the performance of the two machines may be about the same, tenants feel more compelled to pay topnotch when the appliances are clean and look brand new.
While security features such as an alarm system, deadbolt, and door chime aren’t normally on the list of must-haves for future residents, they are an added bonus. Offering to pay for the alarm service gives the rental property a competitive advantage over similar homes in the area; this will not only generate more interest in the home, but the high demand will increase rent.
Aside from security and safety, another way to collect more rent is by replacing the carpet with laminate floors. This goes back to the idea that tenants want to live in a home that looks and feels clean. Carpeted floors collect dust, show signs of wear, require more upkeep, and stain easily. A reasonably priced laminate flooring is easy to maintain and gives the home a fresh look.
While all the upgrades and features mentioned above will maximize the rental property’s revenue potential, perhaps the most significant aspect of generating income is through outdoor living. Regardless of the size of the area or the level of privacy, having an outdoor space will add value to the house. A small patio, balcony, yard, or even just a bonfire pit will allow the property owner to collect more rent.
Whether you are an experienced landlord or property manager, or just getting your feet wet in the world of income producing properties, it only takes one cold season to learn the hard way that preparation is your friend. The following are a few suggestions to help you prevent costly repairs.
Exterior Property Attention
Save money and prevent vacancies by taking the time to address these exterior issues for a sound and more attractive exterior.
- Clean gutters. Trapped leaves hold water and drip causing wood rot under the roof edge.
- Sprinkler systems. Remove all parts and examine for damage and clean, then open feed valve to allow remaining water to drain off.
- Outdoor faucets. Search area around the pipe where is comes out of the wall or ground, and caulk around the pipe use Styrofoam cones to block off the wind.
- Exterior HVAC unit. Remove tree limbs and other debris from around the unit and inspect the inside for infestation nests of insects and windblown debris.
Interior Weatherizing and Rodent Prevention
Due to summer temperatures, the safe bet is to re-examine all entrances for security and weather issues as well as any damage.
- Windows and door seals. Direct sunlight deteriorate weather stripping, and new caulking prevents drafts and moisture damage.
- Fireplace maintenance. Examine the ends of chimney pipes for the excess collection of byproducts from the fire, and test existing gas lines for proper operation.
- Attic safety. Squirrels and other rodents find their way into the attic through eve vents. Search the attic for droppings and other debris and hire an exterminator if necessary to secure the attic from outside intruders.
- Smoke detectors. Contact the local fire department about smoke detector requirements and ask if they have programs to inspect these devices for you.
When it comes to saving money and increasing your profits on real estate investments, preventive maintenance takes first place on the To-Do list of any landlord or property manager.
If you are someone who rents property out to other people, you know how difficult it can be to run a rental operation. It takes a lot of organization and patience in order to keep things running smoothly and to help preserve the sanity of everyone involved. When renting out to possible tenants, it is important to keep a very organized filing system of information. This helps to store details about the people you may have rented to or will be renting to in the future. Many landlords make the mistake of keeping very little information on their tenants and this can cause several big problems in the future.
Tenant screening should be a very pivotal part of the rental agreement. Knowing who you are going to be renting to and what their habits are can help everyone involved. Knowing a tenant’s renting history can have a profound impact on the place that is being rented out and the people that already live there. If a potential tenant has anything questionable in their background that could cause trouble, it should raise red flags. Tenant screening should also include a check of tenant credit as it can tell a lot about how dependable the tenant may be in the future when it comes to payment.
Past experiences, not only including tenant credit should be taken into account, such as a prior criminal record or eviction history. If a tenant is denied rental, it is also important to keep that information on file in a locking filing cabinet. If you are a landlord or property manager, you know how difficult it can be to find quality tenants. With a proper tenant screening system, you can find and keep the ideal candidates.
Tenant screening is a very important process because it helps you to find the person who is going to take the best care of your rental property. However, many new landlords are surprised to learn that there are many legal rules involved in accepting and denying tenants. Fair Housing Laws will require you to treat all tenants equally and not discriminate while rejecting them. By following a few simple steps, you can protect yourself from any lawsuits and ensure that all prospective tenants are treated fairly.
Are There Legal Reasons to Reject a Tenant?
It is important to note that certain reasons for rejecting a tenant count as discrimination. You cannot reject tenants due to their age, race, gender, or ethnicity. These are all protected classes, and the person will have grounds for a lawsuit if you reject them for belonging to one of these categories. Technically, any reason for rejecting a tenant outside of the classes protected in the Fair Housing Law is legal. The most commonly given reasons for rejecting tenants are that they have insufficient income, a past history of evictions or late rent, a bad credit report, or a history of engaging in illegal activity. It is also legal to reject a potential tenant who has a pet or smokes, since both of these actions can damage a property. There are many other possible reasons to reject a tenant, and you can talk to a lawyer if you are uncertain whether or not a reason is legal.
Are You Required to Give Written Notice?
The Fair Credit Reporting Act requires you to provide an adverse action letter if you are rejecting a tenant because of their credit report. This adverse action letter allows applicants to know which credit reporting agency reported the bad score to you. This is the only time that a written denial letter must be sent to a tenant. You are legally required to include the name, number, and address of the credit reporting agency you used, a statement saying that the reporting agency did not make the decision to reject the tenant, and a notice that the applicant can dispute the information if inaccurate.
What Is the Best Way to Reject a Tenant?
Though you are not required to send a written notice of tenant rejection at any other time, it is a great way to protect yourself against any future lawsuits claiming that discrimination happened during the tenant screening procedure. A denial letter does not need to provide a reason to reject a tenant, instead you can just politely say that you ended up choosing a better qualified applicant. However, some applicants can be pushy and demand more information. Though you are not legally required to, it may be the easiest way to deal with a difficult person.
As a landlord, there are many things that you can do to help solidify a healthy relationship with your tenants. Welcoming them with a fruit basket, welcome sign, or another token is an excellent way to make them feel right at home when they move into the property. By taking the time to start the bond off on the right foot, you can develop a level of communication that will help protect the property and ensure that your tenant reaches out when problems arise.
Leave a beverage or snacks for new residents to enjoy
Moving day is hectic, and trying to find time to eat right is a huge hassle that day. One way you can help your tenant feel welcome is to leave snacks on the counter or pizza in the fridge. For families, you can also put a bottle of sparkling cider or some soda along with it. Couples and individuals may enjoy a bottle of champagne or wine to relax with on their first day in their new home. As a landlord, you can help ease the moving aggravation by being thoughtful.
Handwritten notes go a long way
Place a note on the fridge that lets the renter know that you are happy that they chose to live in your property. Place an inspiring quote, or use beautiful stationery to make it more appealing. You can also add a fresh bouquet of flowers to the counter or bar to make the home feel more welcoming when tenants arrive.
Provide a list of information
A fabulous idea for property owners and managers is to leave a list of local places to visit, shop, dine, and enjoy. People who are new in town will be especially grateful that someone took the time to give them information they need to navigate their new neighborhood. A list of grocery stores, movie theaters, diners, nightclubs, and malls is a great place to start.
Making new renters feel right at home is easy to do. It will go a long way creating a relationship based on communication, trust, and friendliness. It can help ensure that people who move on at a later date leave your property in good condition. They are also more likely to report problems sooner for fast resolution.
The summer rental season will be coming to a close in the next few months, and this has left many landlords wondering what they can do to find the perfect tenants and maximize their rental revenue. Read ahead for a quick look at a few steps you can take to get your property ready for your next tenants.
Contact the Current Tenants
If you are not working with a property management company, then you will need to contact your tenants and make sure everyone is on the same page. Whether they are considering extending their lease or have been having problems with certain appliances, tackling these issues early will limit the amount of time your property is empty.
Take a Fresh Look at Local Real Estate
Determining the value of one’s property can be extremely difficult. This is why many landlords utilize real estate firms or property management companies to help them come up with a fair rent rate. Even if the market has not changed, you should still think about raising the rent slightly to keep up with inflation.
You must do a walk-through with your current tenants and immediately after they leave. During both of these walk-throughs, you should keep a running list of updates and renovations that need to be made. Once you have a complete list, you can then decide what the tenants will be responsible for and what you will take care of yourself.
Carrying out major upgrades every year is completely impractical for most landlords. Instead, you might want to do a few key additions that will help you get new tenants as quickly as possible. Options such as new appliances and safety features tend to have a great return on investment in practically any economic climate.
Applications and Background Checks
Customizable rental applications can found Free at StarPoint Tenant Screening, and in most states tenant screening can be covered by an application fee. While it might seem like another annoying expenditure, you must also conduct background and credit checks on all potential tenants. Spending a little extra money upfront could save you from losing thousands on legal services later on.
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