“With this lease contract, I thee wed”
It’s a marriage between the tenants and the landlord . . . and everything is wonderful! The tenants are so excited to have a new place to live. Decorating is exciting, there are new things to buy, parties to plan, a shorter commute to work, and anticipation is in the air. The landlord is happy, too… finally the money will start coming in again, no more advertising costs and … wait, did I hear the tenant say “parties to plan”?
That’s just life, and part of the things that both landlord and tenants have to deal with in the complex landlord – tenant relationship. Right, life happens, and landlords need to realize that there WILL be bumps in the road. Will you drive fast over the bumps and damage your car, possibly losing control? Or will you carefully maneuver around those bumps, saving your car and your piece of mind?
Or is there an ‘out-of-the-box’ solution? Maybe, just maybe you can get the tenant to ‘fill in’ those bumps for you? Crazy? Not really, and this guide will give you some ideas on how you can work with your tenant to fill in the potholes of your long-term relationship.
I’m talking about ‘incentives’. Ways that you can work with your tenants to make sure that your rent is paid on time, that your tenants are happy with you as their landlord, and that your valuable assets are protected at the same time.
First, look at your tenants as ‘people’. Sounds silly, right? But many landlords just view their renters as money machines that only call them when they want something from you. Guess what? If that is your viewpoint, you are probably an unsuccessful landlord. You may get by with putting off a repair for a while, but then again your tenants may build resentment, damage your property, leave you, and then post a bad review on social media. Should you care? Of course, you should. Besides all of the expenses you will bear, you’ll soon be advertising for new tenants, and it will be even harder because like it or not, most tenants nowadays really will check for reviews about you on social media. If this sounds like tough love, maybe it is …your reputation matters.
Back to the wedding – what is the best way to have a marriage that lasts? Answer: Have a couple that knows each other well and accepts them way they are. In a relationship, that is by taking the time to develop love and understanding of one another. No, I’m not suggesting that you date your tenants – I’m saying that you need to do background checks! As a landlord, you need to know your tenants thoroughly by examining their credit history, employment history, rental history, criminal offenses, evictions and more. Hmmm, maybe that would also prevent some bad marriages too, but I digress. If you don’t do your homework at the beginning, it may not even matter if you take some of the other incentive steps I’ll mention later on.
Get to know your partner
The tenant usually pays for the background check, so failure to get one is like tossing a coin between getting a bad tenant or a good one. This is THE most important first step!
- Verify that your tenant can pay the rent. That is spelled ‘J.O.B.’. Even if they do have a job that covers the rent you need to be sure that it can also cover all of the credit card debt (think Kohl’s, Target, Walmart, Amazon, and other retailers in addition to card companies), car payments, installment payments, living necessities, and an additional ‘cushion’. You have one, don’t you? Who provided the job information? Was it their previous supervisor (preferred) or ‘Cousin Louie’ (not so preferred)? A simple phone call will verify it, so don’t be afraid to punch those buttons. However, don’t ask them to verify how much they make, as that will breach the employers confidentiality with their employee. If you are renting to students, great, but just make sure that the parents are willing to be responsible for the rent as guarantors (I spell-checked that word, so blame Microsoft if it isn’t correct).
- Lighting may not strike twice, but tenant history just might. If your prospective renter was a bad tenant in the last place they rented, it’s pretty likely they won’t be angels for you either. Then again, maybe there was an understandable reason that they broke their lease, so at this point, you’ll need to put on your detective hat and verify the reason for that black mark. Even if they have a decent rental history, you should contact their previous landlord and politely see if they don’t mind answering a few questions about a previous tenant. (There is kind of a secret ‘brotherhood’ (or ‘sisterhood’) among landlords, so most will be happy to oblige). Ask if they paid rent on time, if they maintained their rental property, if they got along with their neighbors, if they followed the property guidelines for use of the facilities, parking, noise, and more. You might find out they were great and just had to move to be closer to school or work, or then again they might have had bonfires on their patio and rehearsed their metal band on Wednesdays and Fridays.
- Criminal history … hmm seriously, do you want to take the risk? Again, this is another red flag that will cause you hours to investigate, so you need to decide if it is worth it. Was it a parking violation, marching at a peace rally, or did they murder their last landlord? Often minor violations won’t show up, but you’ll want to know if there were any DUI’s or sex offenses. You have an obligation to help protect your other tenants, so don’t even think about renting to someone with serious convictions.
- The background check provides other valuable information as well, such as their creditors and credit score. A low credit score is not necessarily a deal killer, but you should know why. Like I said before, life happens. There might be a divorce settlement or medical problems that affect the score, but the ability to pay their rent after expenses should be your primary concern.
Meet and Greet
Ok, so now you are cool with the tenant screening part. Let’s get that lease signed! No, wait. You need to first talk to your tenants in person. If the tenant is a student, try to get the parent/guarantors there or at least on speakerphone. That way you can outline the responsibilities of all parties and have a clear understanding of what you expect of all of them. I like to have a separate meeting from the lease signing party because it is more relaxed and you don’t have to go over every provision of the lease in detail. Plus, you have a way to back out if things don’t go well. By that I mean, that you find out something that would be a deal killer, such as a roommate that isn’t confirmed, a problem with the parent guarantee, incorrect move-in or move-out dates, and so on. Plus, it is just fair to give the potential tenant time to go over the lease in detail so that they can ask questions prior to signing the lease with you. At the lease signing, be absolutely sure that you do go over the lease terms and make sure everyone understands it. Be super-friendly but also make it clear that this is a ‘professional’ relationship and you WILL enforce the terms of the lease strictly. It is a contract, not a guideline, so prepare your tenant for their legal responsibilities. But you don’t get off that easy, you must guarantee to your tenant that you will also enforce YOUR responsibilities, like enforcing their ‘quiet enjoyment’ (keeping the neighbors quiet), fix things that break (your stuff, not their TV or Xbox), and respond to their request promptly. Remember, when you are married, it takes two responsible people to make both happy.
Watch What You Say
One more thing, I have to warn you about some of the things that you CANNOT ask your tenant. There’s this little thing called the Federal Fair Housing Law or your state might have a separate one – it is a big legal no-no to not pay strict attention to it. Here it is in a nutshell – don’t discriminate! Here are some fairly blatant examples of what NOT to ask a tenant:
- Race – questions like ‘What race are you?’ or ‘Do you want to live with other minorities like you?’
- Color – ‘You have dark skin, are you Hispanic or Caucasian?’
- Religion – ‘I am a Buddhist, so I don’t want any Christmas decorations in your apartment’.
- Sex – ‘I would be glad to have more good-looking women like you here’.
- National Origin – ‘What is your first language?’ or ‘What country were you born in?’
- Familial Status – ‘I don’t want my tenants having kids’.
- Stupid Stuff – ‘A guy and his boyfriend might bother the others’ or ‘Are you divorced?’ or ‘Have you ever been arrested?’ because being ‘arrested’ and ‘convicted’ are very different. Additionally, you cannot only run background checks on select races or genders.
Don’t Be the Bad Guy (or Girl)
Now that you have let your tenants know that you will strictly enforce their lease, you can let them know you are not all that bad. There are ways that you can keep your tenant happy and even get them to work on your behalf (remember filling the potholes?). Here are some ideas on how you can maintain happy tenants and keep that rent money filling up your mattress.
- Reward your tenants for longevity. No, I don’t mean give preference to the elderly. If they keep your rental property occupied, that is a benefit to you. (Flashback to dealing with security deposits, eviction, legal troubles, and you with a bottle of Jack). For example, you can write a provision in your lease that when they renew their lease, you will give them something special, such as a free carpet cleaning or an interior paint job. This rewards your tenant, and at the same time, it improves your rental property. Another idea (maybe the second year) you could offer to plant some trees or improve the exterior of their rental. Again this is a win-win situation – you get a happy tenant, renewal of your lease, and improve the value of your property at the same time! Each year think of something new that you can do as a longevity reward.
- Next, think of your tenant as a ‘good will ambassador’ for you. Maybe you can provide a financial bonus off a month’s rent if they bring in another tenant for you. Or maybe that incentive could benefit the new renter instead. Be sure that you can verify that the new tenant isn’t a result of your own marketing, and limit it to one or two tenants to protect yourself from abuse of your incentive. By the way, this incentive might also be something else, such as an upgraded appliance, Internet or networking upgrade, ceiling fan, or decorations. You’ll know what the tenants might want by actually spending some time ‘talking’ with them about what they would like to do to improve their ‘home’. Lack of communication is the main reason for so many divorces!
- If they are renting your house, maybe you can get them thinking about buying the home by creating monthly credits toward that purchase. This is different from a ‘lease to own’, which is an actual contract where rent payments go towards purchase of a home. The way that it is different is that a ‘credit’ is applied each time they pay rent on time. ‘On time’ is the key here, because this rewards the tenant for not being late. You’ll have to keep a ledger (available to the tenant) with these credit amounts. After a set time, say 5 years, they will be able to use the credit towards the purchase of the house. This helps keep your renter in the home, and gives them a goal to work towards. Not to mention the ‘on time’ clause … if they pay their rent late, the accrued credit goes away…zilch…nada. (I didn’t take Spanish in High School for nothing!) Then it starts over with the next on-time payment. This is just an idea for out-of-the-box thinking, but you’ll need to provide your tenants with the details and make sure everything is good and legal.
- One of the main reasons for tensions between landlords and tenants are the maintenance requests. This is where your lease is SO important. You only need to fix the things that you include on your lease agreement or those things which involve the health and safety of your tenants. That includes removal of pests (excluding children), locks, fire alarms, neighbors shooting guns, and unhealthy environments (think mold). Of course, things like backed up toilets, dripping faucets, broken ice makers and the like are things that may (or may not be) caused by tenant neglect. Generally you are obligated to fix those types of things, and that will keep your tenants very happy indeed (you hope). However, some tenants are pretty handy around the house, so one way to establish a good relationship is to let them do some minor repairs themselves. Do they do professional painting, plumbing or landscaping? Notice the word ‘professional’. They should be licensed and bonded for any work. But if they are, why not barter for some improvements on your property? Besides rent reduction, you can also wield some of the other incentives mentioned above. Non-professional work could include yard work, handing out flyers (for the non-technical or social media posting for others), installing hanging plants, minor painting or whatever your brilliant mind can conjure up. You’ll need to ok everything in writing and provide the materials in most cases.
Think Out of the Box
These are some things that will help you keep your tenants happy. There are many other things as well, but those fall in the category of ‘amenities’. If you manage an apartment complex, tenants have come to expect an exercise room, laundry facilities, pools, and common areas. But you can always take that one step further by providing a meet-and-greet on a regular basis, movie nights at the pool, or with each new tenant lease agreement signed, send out a ‘welcome’ on social media to the other tenants. Here are more ideas:
- Consider adding a common area for a dog park. It should be fenced, and separated into a ‘big dog’ area and ‘small dog’ area. If you really want to impress, add an obstacle course for the dogs. Be sure to add a sign upon entry that you are not responsible for anything that happens in that area. You don’t want to have to deal with little fluffy ‘Fi-Fi’ that got eaten by ‘Bruiser’. Draw the line on other pets like pigs, goats, horses, and tigers.
- Barbecue areas are popular with tenants, maybe with a horseshoe area (not for real horses, see above), rope toss, Bocce ball, or washer toss.
- Bike racks are a great idea. You tenants will appreciate not having to chain their bike to a tree, stair railing, or having to carrying their bike up 2 flights of stairs. Again be sure to post a ‘not responsible’ sign.
- We can’t get enough. Consider adding electronic entry, security cameras, online applications, online rent payments, an app to alert when laundry is done, or maybe something shiny that just looks like smart technology.
- Discount coupons or coupon books are popular. Contact the local businesses and see if they can provide your tenants with a coupon (available at your front desk), and in turn you might get a free meal or membership. Win-win.
Finally, be sure to keep your rental property clean, well maintained and communication open with your tenant. When you do that, you will have the type of tenant that will be loyal, timely, and together you will smooth over those ‘potholes’ in the road you are traveling on. Happy marriage!
About the author:
Wayne Gathright is the President of W G Software, Inc., which produces the Tenant File Property Management Software. The Tenant File is used by over 5,000 landlords, property managers, and owners of rental property. The Tenant File was founded in 1995, and now manages over 200,000 rental units. Wayne has written several books related to property management including ‘What ALL Landlords REALLY Need to KNOW’, and manages a number of other websites related to real estate sales and rentals, tenant management, and rental property. In his spare time, Wayne is an award winning songwriter in Austin Texas. Visit the Tenant File at: http://www.TenantFile.com.