Need help with my first rentals ever

I just picked up two SFR on owner financing, and I am looking to do some rehab work to them and turn them into rentals. I have no prior experience with landlording what so ever, and so I am in serious need of some quick education.

So here’s where I am at: I’ve closed on the properties and I am now in the process of rehabbing them. And I have a tenant lined up for each.

I need to prescreen them, then have them sign rental agreements, and then put down a ‘earnest’ money check, or whatever you may call it so that if they back out during the rehab phase they lose that money, and I need that structured in the contract.

Does anyone have or know where to get a paper to fill out for prescreening that I can hand them to fill out, AND rental agreements that include earnest money amount, security deposit etc?

Also I need to know how to run background checks, etc. And what else should I look out for?

Also How do I determine what my properties SHOULD rent/lease for?
Do I need to transfer the Power bill/utilities into my name, and then have them pay me, or how does that work where they pay all those bills if they’re in my name?

Also, I want to set it up so that my loan payment to the seller’s is an auto withdrawal out of my account each month to their’s, but how do I set it up so that I have receipt of payment towards loan?

OK. I’ll try to give you what you need to get started.

First, you need to learn your state’s landlord/tenant laws. For Oregon, check here:

You have to know your legal procedures there for eviction, what you can and can’t do with respect to your tenants, etc.

Next, you need to figure out how to run background checks in your area. Here I have to use special forms from the County Sheriff’s office that the applicant fills out for the background check. It’s also $10 per adult here so I charge $10 per adult plus an extra $5 for my gas for the application fee. I will try to email you an application. You need to check out their income, background, etc. I always look up phone numbers for applicant’s jobs. If your applicant says he works at Precision Equipment and his supervisor’s name is Joe, I’ll look up Precision Equipment’s phone number. Don’t trust the number on the application because the applicant may have given you a number for their friend who is just playing the role of Joe Supervisor when you call. If I catch someone in a lie for background checks or running the application, they’re done at that point.

Next, you need to develop a set of policies. What kind of issues will be ok for someone to rent your house? Will you accept someone with felonies or misdemeanors? How many of each and how recent can those issues be for you to still accept an applicant to rent your house? When will your rent be due? What is the late payment penalty? How will you collect the rent? What pets will you allow, if any? What other rules will you have for your tenants? How much will your security deposit be? How much money does an applicant have to make for you to accept them to rent your house? Etc, etc, etc…
I have a list of policies that I staple to the front of our rental application so people know up front what we will and will not tolerate.
Also realize that due to equal housing opportunity laws, you cannot discriminate against any applicant for any of the following reasons:
What Is Prohibited?

[b]In the Sale and Rental of Housing: No one may take any of the following actions based on race, color, national origin, religion, sex, familial status or handicap:

Refuse to rent or sell housing
Refuse to negotiate for housing
Make housing unavailable
Deny a dwelling
Set different terms, conditions or privileges for sale or rental of a dwelling
Provide different housing services or facilities
Falsely deny that housing is available for inspection, sale, or rental
For profit, persuade owners to sell or rent (blockbusting) or
Deny anyone access to or membership in a facility or service (such as a multiple listing service) related to the sale or rental of housing.[/b]

Now realize you can deny someone based on ANY reason other than the protected classes listed above. If they don’t make enough money, if they’re just mean and rude to you, or any other reason. Just don’t have it related to any of the protected classes above so you keep within the law.

That is from this site:

OK. So now you have figured out how to run background checks, you’ve made your policies, you’ve figured out how you can’t discriminate against people based on certain reasons. Now let’s figure out your lease. Oh, and if you don’t already have insurance on the houses in your name (or your business name if you’re operating under a business name) for the purpose of the houses being rental houses, get that done now. We use GuideOne and Foremost Insurance companies. When you check on insurance, ask your agent how much the premium goes up when they raise the liability insurance amount to the maximum allowed by their company (it’s usually not a lot more expensive, but it’s good peace of mind to have 500k or 1MM liability in case you get sued).

For the lease, you have to lay out what is expected of the tenant and give them all of your rules in writing. What are they responsible to fix? Can they contract their own maintenance (I would NEVER EVER EVER let a tenant contract their own maintenance)? When is the rent due? How do they get it to you?
I can send you a copy of the lease we use. It’s been battle tested in court several times and I have a 100% success rate evicting people and suing for a monetary judgment. You will need to see if there are any specific clauses you need to include in your lease for your area. You can check with some local Realtors to see if they have a lease. You can also check with local apartment complexes or even someone you know who rents an apartment there. That will tell you what you need in there.

Something else for your lease…If you houses were built before 1978, you are required by law to give the tenants a copy of the EPA pamphlet about lead based paint and have them sign a document showing they received that and whether the house has any lead based paint in it or not. You will want to find out from the prior owner if there’s any lead based paint there. If there is LBP, you can either have it removed and then retested or you can “encapsulate” it which means you just paint over all of it. Guess which method is more cost effective.

Here’s the pamphlet:

I’ve also seen the pamphlets at my local Lowe’s store in the paint area.

Here’s the LBP disclosure form:

For this form, you initial the appropriate line in section A whether there’s LBP there or not. In section B, you initial whether you gave the tenant a copy of the LBP report or whether you have no report of LBP because it doesn’t exist there.
Have the tenant initial in section C where they received the pamphlet and any copy of LBP reports.
You sign and date as Lessor at the bottom.
The tenant signs and dates as Lessee at bottom.
Someone else can sign as Agent and initial section E for agent. I have my wife do this.

Ok, so now we’ve got the lease developed and we know about the LBP requirements. You need to get these systems and paperwork developed NOW. Don’t wait til it’s time to move the tenant in. Get on it now. You should not hold a house for someone without them giving you a deposit. Otherwise, they could just back out on you and you may have told other people the house was rented, but now you’re holding the bag with an empty house and no approved applicant.

Once you have an approved application, get the deposit from them. The deposit should be cash or money order. Give a receipt for the deposit.

Once the house is ready and it’s move-in day, have two identical copies of your lease and LBP disclosure form (if applicable) on hand. Some people also have a move-in/out form where the tenant can document any known issues with the property upon move-in. You can also just take pictures or video so there’s no he said / she said possibility.
When I move someone in, I basically explain the lease to them section by section. They learn what is expected of them, when and where they’ll send the rent, how to contact us for maintenance requests, other rules, etc. I then walk them around the house not only so they can see the condition, but also so I can show them things like:
location of circuit breaker box
show them water shut-off valves for the toilet and all sinks
how and when to change furnace filters

You want to sign both copies of the lease and LBP form. I only care that they sign my copy of the lease.
I would only accept the first month’s rent in cash or money order. Once again, I always give a printed receipt for cash. You can get a little receipt book at Wal-Mart or an office supply store for just a few bucks that has carbon copies in there. I would not accept a personal check for the first month’s rent. If the check bounces, you’ve got problems right off the bat.
If someone moves in after the first of the month, you need to pro-rate the rent for only the days they live there. If I have someone move in toward the middle or end of the month, I make them pay a full month’s rent up front, but then I tell them what they’ll owe for the next month.
For example, if someone moves in Jan. 15 and the rent is $500, I’ll make them pay $500 at move-in. That carries them thru til Feb 14. Then on Feb 15, they’ll owe the rest of Feb rent. Then in March they’ll pay $500 as per the lease terms. This method keeps someone who can’t afford your house from moving in late in the month, giving you a few bucks, and then you having to kick them out when they can’t pay rent the next month because they couldn’t pay the whole month’s rent.

After they move in, it’s just tenant management and fixing what needs fixed. Of course that all sounds easy, but some people can make this rental thing pretty difficult. For me, those who choose to be disrespectful and/or not follow the rules will become “former tenants” if they don’t change. Usually the problem with a rental house is really with the people inside the house and not necessarily the house’s fault itself. Just keep that in mind.

OK. I think that gives you a pretty good idea of what you need to do. Setting everything up in the beginning is the hard part. Once you know how to run a background check and application, once you have your lease developed, etc, it all just becomes replication when you get more houses.

For determining rent amounts, you can call ads in the paper to see where houses for rent are located, how big, how many BR/Baths, etc. If you see for rent signs near your houses, find out what they want for those houses. Check apartment prices. See what your competition is charging.

For utilities, unless you absolutely have to, DO NOT put utilities in your name. We have a few properties where we pay the water/sewer/trash. Those are a duplex, our small apartment building, and another property that has a house and bungalow on the same property with only one water meter.
If you’re paying some utilities, factor that into your rent amount when you determine what you want each month. I would avoid paying electric and gas at all costs. Tenants (from my experience) tend to not abuse water, but some will keep the house frigid in the summer and like a sauna in the winter. Let them be responsible for that bill…not you.
That’s also something to look at when you are looking at duplexes, triplexes, quads, etc. Are they separately metered for utilities?

I could go on and on, but I think this is a good start for you. Some lessons you’ll learn from experience and you’ll change your tactics based on how you got screwed over by someone.

I’ll send you those files. Let me know what other questions you have.

To determine what your properties should rent/lease for you need to check the prices for the similar property that you have. In other words, to study the market prices to verify what is acceptable for you and your property. To do it you can visit different online websites where people post their rental property, like localmartuk or others. And you are absolutely right that your tenant problems can be eliminated in the screening process. I suggest you make a list or prospect card of questions to ask and have it handy while you conduct your first contact interview. The first thing you need is a quality rental application. Let the applicant know that his or her application will be considered along with others, and you will notify the applicant once a decision is made. You can find an online application. You can use the agency service to cope with all the document or hire a lawyer. Tenancy agreement can be written down or oral and get a copy of it. Your tenancy agreement should include the names of all people involved, the rental price and how it’s paid, information on how and when the rent will be reviewed, the deposit amount and how it will be protected and many other tips that should be as well considered. Good luck!