To start at the beginning – please see part 1 of this series.
Its amazing to me how this series of posts has grown. I’m half-tempted to work them into a more coherent essay format once I’m finished and have a permanent link on my side-bar.
I needed to find tenants at this point, which was suddenly a totally new (and totally scary) activity. I joked with my friends and family going through this process that each time I felt I had become somewhat proficient in a part of the process (condo hunting, negotiating, renovations, tenants screening, landlording) I then moved on to the next stage which required totally different skills and had me starting as a novice again.
My buddy who already owned buildings was good enough to keep advising me throughout the process. His feeling was that many property owners got scared when a unit was vacant and would jump for the first potential tenants. Often this just lead to problems down the line, which would cost more than having the unit sit vacant for a couple of months. He said EVERY time he’d accepted a tenant in haste, he had regretted it later, so I decided to learn from his experiences and hold out for a tenant that passed his screening process.
I signed up for Rent Check Credit Bureau (http://www.rentcheckcorp.com), which certainly wasn’t cheap ($75 annual membership, $20 per credit check), but it was a necessary part of the process. I got applicants to fill out an application form (that I got from my buddy) and had a standard lease (also from my friend).
Basically if you get someone’s SIN or their driver’s license you can look up FAR more information about them then you’d ever imagine (things like current balance on their Mastercard and student loans, it made me uncomfortable what I was able to look up).
You also need to collect references and whatnot on the application form. These aren’t QUITE what you think they’re for, but they’re quite important. The previous (current) landlord must be contacted. If they had late payments to them, they’re cut. I was going to rent to one small family, and their current landlord had 2 late-payments on record and they HADN’T GIVEN NOTICE (yet they wanted to move into my place in 1.5 weeks). That’s going to be a great situation when they move in to my place, then stiff their old landlord. If they lose the court battle, they’re going to be short paying me, and if they somehow weasel out of it, they’re going to leave me without proper notice. Forget that!
I also had a woman who gave me her current landlord’s contact info. While we were talking she mentioned that her father did engineering work for the government and was a property owner. I did a Google search on her “current landlords” phone number (always do this), and sure enough, it was an electrical engineer’s company with the same last name as her (hmm, quite a coincidence). When I called up and talked to her “landlord” I got a glowing reference. I asked if they knew her before she’d moved in, and they promised me, “no, no, she’s a great tenant and we first met her when she moved in”. If someone needs to use their MOTHER as a reference (AND lie about it), you’re going to have trouble with them.
The personal references are mostly just names / contact info that you can use to track down people who know the tenant if needed (e.g. if they run off without notice or payment).
I started advertising my unit at a price that was average on http://www.rentometer.com. I showed it to about 10 people and not one of them filled out an application. My buddy told me that if 1/2 the people who view it don’t fill out an application there’s a problem (usually its overpriced). If people don’t fill out an application ON-THE-SPOT they’re not interested. They’ll say they’ll think about it and get back to you (but they’re just being nice).
I dropped the price, showed it some more (and still wasn’t getting anyone to fill it out). I was starting to feel a little desparate, so I talked a woman who worked at the condo corporation office and she told me what the average 2 bedroom was renting for in the building. I added a little bit extra to this (assuming her experience was over a longer time and the current rent should be a bit higher). I also charged a little bit extra for smokers (since I’d have to repaint) and pet-owners.
One line of thought is that its worth underpricing your unit. My experience is that renters are VERY savvy about what the going rate is (more then I am probably, since they’ve been looking at lots of units). If you charge a little bit below market, you’ll get a TON of applicants. Being able to pick someone who looks really good (great credit history and reference from past landlord) and get them in there quickly will easily make up for losing $50 / month on rent. The last place I rented, I eventually moved because the landlord increased the rent $50 (I was paying $650 and he raised it to $700). I was thinking about moving anyway, and the increase just got me to move sooner. He wasn’t able to rent it for 2 months after I moved out, so from trying to get an extra $50 / month, he lost $1300 (it’d take him over 2 years to recoup that if he was able to get the new higher rent from the next tenant.
Having a unit sit empty is expensive, but putting a bad tenant into it is far worse. Renting under-market is the best way to quickly get a good tenant (the good tenants will also know when a place is a deal – paying your bills on time and understanding the cost of things go hand-in-hand).
In the end I found a delightful young couple with excellent credit, who paid $1300 / month for my condo (they had a cat so they paid the “pet premium”). So far so good (they’ve been there for 2.5 months so far).
In the next part I’ll talk a little bit about the repair issues that came up after they moved in.