Author Topic: Have you rented out an apartment in your home? What have you learned?  (Read 4961 times)

jeastith

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My husband and I are buying a new home.  It's approx 2700 square feet, and legally is two units/multi family dwelling.  We plan to live in the upstairs, which is 1800 square feet, 3 BR, 1.5 bath.  The downstairs of the house is an inlaw suite with a private entrance in the back of the house.  It's about 800 square feet.  Previous owner rented it out for $900/month.  I'd love to learn from others who have rented in this situation.  Any tips you've learned along the way or mistakes I should avoid?  We are excited at this opportunity and love the house, but we've never lived with renters below us before, so are a bit nervous about it.  Thanks! 
Jeannie     

fixer-upper

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A general tip on renting;  Take a look at their car when they're viewing the apartment.  If its filthy, the apartment will be, too. 

zephyr911

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I've rented out rooms in past houses, and the entire 2nd floor of my current house until just recently when I got married. My lessons learned:
1. Always ask for income and credit history. They can print a pay stub and pull their own score for free at CreditKarma; also ask for rental references, and call those references. If they walked out on a rental debt, they'll probably do it again, so make that an auto-denial.
2. Always require a deposit.
3. Always write up a lease and have both parties sign. Legally, it's really more to protect the tenant than for you, but it's important in terms of expectation management and establishing a businesslike relationship from the beginning.
4. If at all possible, get emergency contact information in case anything happens to them (or with them).

TrulyStashin

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I do this, chronicled here http://forum.mrmoneymustache.com/real-estate-and-landlording/rent-out-my-basement/msg117075/#msg117075 and it is one of the best financial decisions I've ever made.

I was very, very choosy in picking my tenant.  I turned away several people without even meeting them -- people with children, mostly (it's a 1 BR).  My tenant is a 34-year old, single teacher.  She is quiet, pays her rent early, and hardly ever home.  She is so great, that I turn handsprings to immediately address any/ every issue she might have.  So far, that hasn't been much.

We recently had an issue with a baby possum getting into the apartment (she'd left the door open one night for about 10 minutes while moving furniture) and she was really great to work with on the trap/ release.  It was kind of funny, actually.  She offered to pay for the cost of the trap!  I turned that down, of course.

I'm at the 6-month mark and my utilities have not gone up at all.  I'm stunned by that.  But so far, it has been all cashflow and no outgo.  I'll be ready if that changes but I have had not one shred of regret.

Northerly

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Very good tips so far. My wife and I rent out our basement apartment and a studio apartment above our garage.

First, I'll super ditto the advice about looking at the car. Is it well cared for? Beat up car => beat up apartment.

I recommend using a month to month rental agreement instead of a lease. As mentioned above, a lease primarily protects the tenant anyway. If, at month two, your spouse is getting the "seriously creepy vibe" from the tenant, you may want to boot them. If you have a one year lease, you're screwed. Or if they're just messy and you want them out, you don't have to use the court to try to enforce your Rules and Regulations, you just tell them be out at the end of next month, for no cause.

Reevaluate how much you're asking for rent. $900 may be right on, but just make sure you're charging what the market will bear. If you can get $1100/mo., that's $2400/yr more. Some people say they charge below market rates so they can be more choosy about their tenants. I say charge at least market rate and still be choosy.

Warn them in advance that they may hear footfalls or muffled conversation since they are in a downstairs apartment (if this is the case).

Oh yeah: limit shared space--especially don't share a garage (Never again!!).

TrMama

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We've done this. I second all the advice from the people above me plus:

- I make them fill out a rental application form. The people who can't be bothered to fill it in, generally don't make great tenants.

- DH and I both have to meet the person. We do not rent sight unseen over the phone.

- When I show the suite, I make sure to allow for some silences in the conversation. When faced with "dead air" people will tell you all kinds of things that you'd never think to ask. This often saves me the cost of running their credit check.

- We don't allow smoking anywhere on the property. I make sure I stand close enough to the person at some point to be able to "sniff test" them. I've had obvious, long term heavy smokers tell me they don't smoke.

- Learn about both tenants and landlords rights in your area. For example, we don't have a lease. IME leases don't keep tenants from leaving anyway and in our province if you do month to month you can get rid of a tenant by saying a family member will be moving into the suite. It provides an easy exit solution.

We're pretty fussy about tenants because we live upstairs with our two young kids. If we didn't live on site, we wouldn't be so picky.

TrulyStashin

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A few more thoughts....

For tenant screening/ application, I used SmartMove.  https://www.mysmartmove.com/ I was very pleased with that service.

I initially planned on asking $700 - $800 a month (utilities included).  After doing market research, I realized that comparable 1 BR's  were renting for $950 and up (utilities NOT included) and were half the size of my space.  I also got some advice from a long time LL who said, basically, charge more because it will weed out the people who don't want to (or can't) pay more.  You'll get a better applicant pool.

I advertised the place at $890/ mo and was really, really nervous that it was too high.  But I got several calls, most of which I rejected.   When I met my current tenant, I could tell right away that she'd be awesome.  She has 3 cats and I asked for a monthly premium to cover the cats.  I'm getting $930/ mo for the place.

I'm really glad I listened to my LL friend and upped my asking price.

farmstache

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A general tip on renting;  Take a look at their car when they're viewing the apartment.  If its filthy, the apartment will be, too.

I just want to protest this. :) DH and I own a 1999 toyota corolla and due to drought we haven't washed the car in months (I think since october?). Also we won't pay anyone to wash it for us (with this drought, curiously washers have been getting a lot of business - do people think f they're not spending their household water it's okay?) We do vacuum the interior sometimes, but it's a moot job because the dog gets it filthy in a few days again.

Also we like leaving the car dirty on the outside because people will think us less well off financially and it gives us an excuse not to spend money (instead of looking simply cheap when we say we can't go out with them again this weekend - people just don't ask too many questions).

My house is generally clean (not pristine like my mom taught me - I have more interesting stuff to do with my time).

That said, I think that's a cool idea, to evaluate people by their cars. But please talk to them and put it all together in a full picture - how they talk, dress, priorities, utilities spend (throw in saving actions in a conversation to see if there's an awkward nod or excited agreement), maintenance issues, personal skills (oh, he loves carpentry!), etc.

Edit: fixed spelling... :P
« Last Edit: July 02, 2014, 08:03:31 PM by farmstache »

gimp

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I figure a filthy car is one filled with trash. Unwashed? No big deal, especially in a drought. Fur inside? It happens, especially if your dog sheds a lot. Piles and piles of empty mcdonald's wrappers? Whole different story.

Daleth

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A general tip on renting;  Take a look at their car when they're viewing the apartment.  If its filthy, the apartment will be, too.

I cannot second this enough. Slobs are so stressful to rent to--we learned this the hard way--and you very often can identify them by the condition of their cars. A few discarded soda cans are one thing. Piles of junk/trash are quite another.

sobezen

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I rented out my home before and I developed a variety of ideas that helped me greatly.  Not all of these ideas will apply in your situation, so use what you can and disregard the rest.  The first practice I recommend is to carefully screen potential tenants by probing for lifestyle and financial tells.

1) Don't trust everything they tell you.  Words are cheap.  Renters will say anything to get a good deal or to back out too.

2) Analyze applicants based on their: a) finances, b) lifestyle, c) personality, d) timing. 

2a) Get two years worth of finances, savings, checking and on top of that run credit reports (they can do their own if it is current within a week).  If they ever were evicted, pass.  If they don't have enough in savings for six months, pass.  If they aren't employed at same company for one year, looked at liquid assets.  You can learn fairly quickly who is a saver versus a spender.  I've never allowed a co-signer but always required a first and last months rent plus full security deposit upfront before any keys are exchanged.

2b) Are they a homebody or do they travel a lot? Are they handy? Are they healthy? Cook a lot? Active? Runner? Biker? Gamer? Single? Pet lover? Military background? Do they clean up after themselves? 

I find the quickest way to learn a potential renters genuine lifestyle is determine how they spend their TIME.  I Workaholics are rarely home that is good.  So ask the applicants to describe their lifestyle and especially their weekends. 

2c) To learn more about their personality ask probing questions leading with why are moving now.  Also make sure to ask about their previous roommates/neighbors, living conditions, work or anything where they can "dish/complain" about their past.  Notice the hidden forms of communication.  Observe their body language and especially their tone; you will discover how they genuinely feel about various topics.  If they have no problems complaining or badmouthing others, rest assured if anything happens, they are far more likely to reveal a difficult, whiny complaining pants personality.  Worst case ask yourself the following, do you want to experience a landlord/tenant dispute with someone like this?  Is there a higher or lower chance they might become vindictive if they feel they were wronged and are entitled?

2d) Timing, make sure it is not a month-to-month, at least one year with a rental clause that you the landlord can evict them if they violate the terms of the rental agreement.  It takes time to fix a place up and make it presentable to new renters.  This is particularly true if you furnish the room.  Any unoccupied room(s) is lost income that you will have to cover.  So while you may not feel comfortable renting out two out of a typical three bedroom single family home, I encourage you to think about why you want to rent to begin with.  Odds are if you are looking to rent out a room it is to help offset costs, right?  If this holds true for you, then dedicating more time to carefully screening out unqualified applicants will help save your headaches later on.

3) Get umbrella insurance to help protect yourself.  Consider adding outward facing cameras on the property exteriors and blind spots.  Last I checked, adding cameras can be a deduction, but confirm with your CPA if you are interested.

4) Require renters to purchase renters insurance.  If they refuse, require a written and signed waver stating they will not hold you responsible for any loss or damages to their personal property.

5) Make sure they fully understand if they violate the rental agreement there will be penalties assessed.  E.g. fail to pay the rent before the last day of the month a late fee of $50 will be added after the second day.

All of these steps greatly helped me reduce rental stress, set clear expectations and create a safer and happier rental environment for everyone. 

Make sure to revisit this thread and let us know how things go for you.  Good luck!  Cheers!
« Last Edit: June 30, 2014, 04:20:38 PM by sobezen »

Sunflower

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I figure a filthy car is one filled with trash. Unwashed? No big deal, especially in a drought. Fur inside? It happens, especially if your dog sheds a lot. Piles and piles of empty mcdonald's wrappers? Whole different story.

I dunno, I'm with farmstach....my car is pretty filthy on the outside and the inside. It hasn't been washed in ages because......it's a car? That sits outside all day getting pooped on and dust blown on it? Also, it's old and deteriorating on the inside and generally I'm in a rush driving to/from places for work so there's definitely more than one empty bag of potato chips floating around.

Despite all of that, I'm a model tenant!

It's really funny to me what a disconnect there is around here between the people who choose to save lots of money by renting (in my situation it's definitely the better financial choice) vs. those who rent and seem to look down upon the filthy masses that are clamoring to destroy their precious real estate. I suppose I should just stop taking it personally. :-)

gimp

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If fifty girls are lining up to date you, you can be picky about who has the bigger tits. :)

But in all seriousness, if I saw http://s3.amazonaws.com/rapgenius/car%20junk%203%20small.jpg, I wouldn't rent to that person. Or from that person. I probably wouldn't associate with that person. That's my opinion.

fixer-upper

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I figure a filthy car is one filled with trash. Unwashed? No big deal, especially in a drought. Fur inside? It happens, especially if your dog sheds a lot. Piles and piles of empty mcdonald's wrappers? Whole different story.

I dunno, I'm with farmstach....my car is pretty filthy on the outside and the inside. It hasn't been washed in ages because......it's a car? That sits outside all day getting pooped on and dust blown on it? Also, it's old and deteriorating on the inside and generally I'm in a rush driving to/from places for work so there's definitely more than one empty bag of potato chips floating around.

Despite all of that, I'm a model tenant!

It's really funny to me what a disconnect there is around here between the people who choose to save lots of money by renting (in my situation it's definitely the better financial choice) vs. those who rent and seem to look down upon the filthy masses that are clamoring to destroy their precious real estate. I suppose I should just stop taking it personally. :-)

Even though I'm the one who said to look at the car, I will admit mine hasn't been washed in months.  It isn't full of trash, though.  I also look at the car in relation to the person and income.  I'm as likely to turn away someone with low income and a shiny new Mercedes as someone with high income and a car full of trash.  Booming stereos also get disqualified. 

CommonCents

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2) Analyze applicants based on their: a) finances, b) lifestyle, c) personality, d) timing. 

2a) Get two years worth of finances, savings, checking and on top of that run credit reports (they can do their own if it is current within a week).  If they ever were evicted, pass.  If they don't have enough in savings for six months, pass.  If they aren't employed at same company for one year, looked at liquid assets.  You can learn fairly quickly who is a saver versus a spender.  I've never allowed a co-signer but always required a first and last months rent plus full security deposit upfront before any keys are exchanged.

2b) Are they a homebody or do they travel a lot? Are they handy? Are they healthy? Cook a lot? Active? Runner? Biker? Gamer? Single? Pet lover? Military background? Do they clean up after themselves? 

I find the quickest way to learn a potential renters genuine lifestyle is determine how they spend their TIME.  I Workaholics are rarely home that is good.  So ask the applicants to describe their lifestyle and especially their weekends. 

Workaholics are not home though to notice issues like a plumbing leak, which can exacerbate the issue.  Pros and cons to each of those...

Re finances, back when I rented, I doubt I would have applied at a place that required 2 years of my finances, as I would have found it far to intrusive in my personal life.  If you checked my credit, my prior landlords, and my job (or grad school offer), then that should be fine.  I'd be a model tenant too - I don't even wear shoes inside the house, I put protectors on my furniture to protect the hardwood floors (voluntarily), no loud parties, pay my rent on time, and except for heat issues, have never complained.  Re 6 months of expenses as well, wozers, when in grad school, no way I had that when I applied for the apts (loan money usually deposited after it, and after I tended to funnel a lot of extra money to paying off the loan more rapidly than required).  In Boston though, you already basically need that amount just to get the place - first, last, security and (often) broker is standard.

sobezen

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2) Analyze applicants based on their: a) finances, b) lifestyle, c) personality, d) timing. 

2a) Get two years worth of finances, savings, checking and on top of that run credit reports (they can do their own if it is current within a week).  If they ever were evicted, pass.  If they don't have enough in savings for six months, pass.  If they aren't employed at same company for one year, looked at liquid assets.  You can learn fairly quickly who is a saver versus a spender.  I've never allowed a co-signer but always required a first and last months rent plus full security deposit upfront before any keys are exchanged.

2b) Are they a homebody or do they travel a lot? Are they handy? Are they healthy? Cook a lot? Active? Runner? Biker? Gamer? Single? Pet lover? Military background? Do they clean up after themselves? 

I find the quickest way to learn a potential renters genuine lifestyle is determine how they spend their TIME.  I Workaholics are rarely home that is good.  So ask the applicants to describe their lifestyle and especially their weekends. 

Workaholics are not home though to notice issues like a plumbing leak, which can exacerbate the issue.  Pros and cons to each of those...

Re finances, back when I rented, I doubt I would have applied at a place that required 2 years of my finances, as I would have found it far to intrusive in my personal life.  If you checked my credit, my prior landlords, and my job (or grad school offer), then that should be fine.  I'd be a model tenant too - I don't even wear shoes inside the house, I put protectors on my furniture to protect the hardwood floors (voluntarily), no loud parties, pay my rent on time, and except for heat issues, have never complained.  Re 6 months of expenses as well, wozers, when in grad school, no way I had that when I applied for the apts (loan money usually deposited after it, and after I tended to funnel a lot of extra money to paying off the loan more rapidly than required).  In Boston though, you already basically need that amount just to get the place - first, last, security and (often) broker is standard.

Good points.  Consider this when you are young why should anyone rent to you?  Even if you are a working professional, single and without vices, do you have a good credit history?  Possibly, but more likely not.  Sure everyone starts somewhere when their credit is not established and/or they still have student loans or other debts.  The thing is as a landlord you do not have to rent to riskier applicants if you have more qualified ones, right?  I define riskier applicants as anyone who does not have stable income and/or savings.  I feel it is important for the tenant to have at least six months expenses saved because if you are renting to younger tenants you definitely want to make sure they have money in case they damage the property (parties and/or overnight guests) or get laid off.  It's been my experience that you absolutely do not want to have to fight any tenants to get the rent, reduce their security deposit, evict and/or deal with other legal headaches.  I do not mind renting to students but they must demonstrate sufficient finances which is more than a reasonable standard. 

So the only way for a landlord or property management company to gain a more accurate picture of an applicants finances is to request two years worth of finances.  Not everyone does of course, but if you are renting in a major city like San Francisco the competition is fierce and inventory is limited.  Wouldn't you want to do everything you can to give yourself the best chance to secure the rental?  The fact is when you submit an application the landlord will have your social security number, full name, telephone, drivers license, employment and bank account information with just one year worth of finances won't they?  So providing two years of finances is not a big deal if it works in your favor.  And afterwards most landlords I've worked with always return personal documents.  I personally had no problems returning all of the documents to the applicants too.

I found workaholics not being present is actually a blessing more often than not, due to their absence they are far less likely to damage the property.  As for unreported leaks and other structural issues, if you are living the same house and renting out a few rooms, it is not too hard to check every few weeks is it?  In the past when I rented out places, if the tenant was traveling or extended periods I gained their permission to enter (and in writing in the rental application) to place their mail and/or check on structural issues only if needed.  It has never been a problem for me.  Also if you are not living in the same property, shouldn't you be checking it every two to three weeks anyways? 

At the end of the day renting a room out or even an entire house is a business.  You want to maximize your profits while reducing any liabilities and potential headaches from abusive tenants don't you?  So taking proactive steps to reduce your liabilities protects yourself, your investment and increases your qualified applicant pool too.
« Last Edit: July 02, 2014, 06:42:17 PM by sobezen »