Thinking about becoming a landlord? You should know this

JUPITER, Fla. – Dec. 6, 2011 – With real estate prices low, many people are considering buying an investment property and becoming a landlord.

It might sound simple, but real estate pros warn that there’s a lot to know. The landlord who doesn’t follow such basic guidelines as conducting a thorough background check can get stuck with a nightmare tenant. It takes both business sense and common sense.

“Most of my tenants, 98 percent, are terrific,” said Jupiter real estate broker and investor Carl Presto, who owns 60 properties. “The problem is that 2 percent.”

The down economy that has resulted in real estate bargains also means it’s more difficult to find a tenant who can afford to pay first and last month’s rent and a security deposit upfront. Landlords report they have to go through 30 to 40 applicants before finding a qualified tenant.

Landlords also find they are competing with foreclosed houses, which some people rent below market, forcing rents lower.

Although picking up a cheap condominium unit might be tempting, David Dweck, founder and president of the Boca Real Estate Investment Club and a real estate broker and investor, advises avoiding them. Instead, buy a duplex, triplex, small apartment building or single-family home where you won’t be subject to a condominium board, he suggested.

Special assessments levied by condo associations can run into thousands of dollars.

Presto agrees: “Pay cash and buy a duplex. Offset your rent. Rent one side, and live in the other.”

Financing is also difficult. Douglas Rill, a West Palm Beach real estate broker who has been a landlord for 38 years, said about 70 percent of investment properties are cash deals.

Whatever the property, Dweck, Presto, Rill and other experts say finding a decent tenant starts with the screening process.

Credit checks and criminal background checks are a must. Small-scale landlords can find help at websites such as www.mysmartmove.com. Operated by Trans-Union, a major credit bureau, SmartMove gives independent rental owners access to the same tenant screening used by large property management groups. It also gives renters data privacy because they provide their identifying information directly to TransUnion in a secure, online setting.

For $25 the landlord receives a credit-based leasing recommendation, national criminal report including 50 state sex-offender and terrorist searches, renter fraud warnings and automated renter identity verification.

For an additional $5, the landlord also can get access to a credit report, a credit score and a detailed rental address history.

The $30 is well spent compared with the basic eviction filing fee, which is $185 in Palm Beach County.

A West Palm Beach landlord contacted recently did not conduct a background check. Now he has a tenant whose true identity is a mystery.

“My experience with landlording has not been positive,” the man said. “I am in the middle of an eviction and the person will not say who he really is.”

Dweck collects a nonrefundable application fee paid in cash before showing a property to a prospective tenant.

An application should be filled out in full as part of that process. The one Dweck developed covers such details as whether the applicant owns a vacuum cleaner, works on cars, owns a boat or personal watercraft, works at home and why he or she is moving.

‘Never be desperate’ for a tenant

Just because you’re offering a place you own for rent doesn’t mean you have to rent to the first person who comes along.

A rental applicant can be denied for such reasons as poor credit, poor personal references, poor job reference, lack of job stability, insufficient funds to move in, criminal background and too many occupants for the size of the dwelling, Dweck said.

“Never be a desperate landlord or landlady,” Dweck advises.

If the prospective tenants have been through a foreclosure or short sale, that doesn’t rule them out if their credit is otherwise OK, Dweck said.

“At the end of the day you have to make a good business decision. Do not let them tug on your heartstrings,” Dweck said.

Rill agrees that background and credit checks have to be conducted. At the same time, don’t expect a perfect credit report. It’s not uncommon to find people with credit scores below 600, Rill said.

“Most people going into a rental are not going to have an 800 credit score. There is a reason why they are renting. Some have low scores because they just lost their house,” Rill said.

Rill said he never checks with the applicant’s most recent landlord.

“If they had a problem, the previous landlord would say anything to get rid of them. I will go to the previous, previous landlord,” Rill said.

Rill advises thoroughly reading the Florida Landlord Tenant Law, Florida Statutes Chapter 83 and giving a copy to the tenant. It states what the landlord’s responsibilities are, such as complying with health and housing codes, and the tenant’s, which include keeping the dwelling clean and sanitary.

Understanding the law can help avoid disputes. For example, the law states that if a deposit is nonrefundable, that should be noted in the rental agreement. The statute also states that the landlord has the right to enter the property at any time in case of an emergency and under other circumstances, such as for repairs, with 12 hours’ notice.

Lawyer review of lease form advised

A written lease is essential. Standard leases are available for free at sites such as www.mrlandlord.com or can be purchased at office supply stores. Rill recommends having an attorney review the lease form you select and modify it specifically for your property.

Of course, leases cover such basics as the term of the lease, when the rent is due and how much the rent is. But they also should include sections on policies about late rent, security deposits and how many people are allowed to live on the premises and that the premises are for residential purposes only.

The lease needs to state what might seem obvious. Many landlords err by not spelling out everything. If you don’t allow pets, don’t just say, “No pets.” State that no pets of any kind are allowed, including visiting pets. Or one day you will knock on your tenant’s door to find her holding a ferret, as one West Palm Beach landlady did.

Don’t just state that parking is provided. Be specific. For example, the lease Dweck created states that the tenant must park in his or her assigned space.

Don’t simply state that the premises must be left clean and undamaged in order for the tenant to receive his damage deposit back after he moves out. Dweck’s lease requires tenants to comply with a number of conditions, such as having the carpet professionally cleaned and cleaning the entire home, including the range, oven, refrigerator, bathrooms, closets, cabinets, windows, carpet and balcony, etc.

‘Professional tenants’

No matter how ironclad the lease is, what some experts call “professional tenants” do exist. These are people who move in and never pay rent. They know that it often takes awhile for an eviction to be carried out.

“Anything is only as good as the tenant’s word. They can still walk out on you,” said a West Palm Beach landlord. “I went to court on an eviction. The guy said, ‘Yes, I owe the money.’ The judge said I did not properly file the three-day notice. The name and address were supposed to be on the bottom right-hand side. It was at the top on my letterhead. It cost me a couple thousand and the guy owed me four grand. I never got paid.”

Landlording is a business, and experts say it’s not for the softhearted.

When rent is past due, Florida law requires landlords to give tenants three days’ notice that they must pay the rent or move. If the rent is not paid after three days, excluding weekends and legal holidays, then the landlord can begin legal action to evict the tenant.

“You have to be on top of it. The stories can get ridiculous. I keep a three-day notice act in my car. I have had people tell me they will not pay the rent because they are buying Christmas presents,” Rill said.

Despite the challenges, people like Alberto Rabadan, a Jupiter real estate broker who owns a 14-unit apartment building in Miami, say they want to expand their investment holdings.

Rabadan was among 20 or so people who attended a real estate investment course that Dweck recently conducted.

“The property values have gotten to a point where it is feasible to be a landlord. I am looking for a bread-and-butter property. Everybody needs a place to live. I want to provide affordable, clean housing,” Rabadan said.

© 2011 The Palm Beach Post (West Palm Beach, Fla.), Susan Salisbury. Distributed by MCT Information Services

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