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I always let the market tell me if my rental rates need to be changed. If my occupancy rate is 100% and there is a waiting list I know that I could probably raise my rents. The first step is to raise the rate for new tenants. If I’m still able to attract new tenants then I know I didn’t raise it too high. I usually raise the rent about 5% at a time. That’s $25 on a $500 apartment. If I still have a full house over the next 3 to 4 months, I’ll raise the rates again. This is a no risk method. It’s easy to lower the rate if the phone stops ringing.

Once I have established that the market will bear higher rents I then take a look at my current rent roster. Since I use month-to-month leases I can change anyone’s rent with a thirty day notice. I personally don’t like to raise the rent on tenants who have been renting from me for less than a year. It’s also a good idea to check the rate of your major competition before you determine how much to raise a current tenant’s rate. Tenants will move if they feel like their rent has been raised unjustly. It is not necessary to take current tenants up to the rate of new tenants. Unless I’ve made visible improvements in the building I won’t raise rates over $25 at a time. (Of course, you can raise the rent much more if you’re dealing with luxury, high end apartments.)

In general, I raise rents every year. Even if it’s only $5 or $10 per unit. Most people don’t even complain about such a small amount. They certainly won’t move to save that amount. Plus, it gets them in the habit of getting rental increases. A $10 per month increase on a 20 unity apartment building will add $2,400 to the bottom line for the year. That’s a $24,000 increase in the value of your property!

I must confess, however that I didn’t raise rents in 2006. The economy was bad and the rental market was very soft. Every building had ‘rent specials’ signs hanging from them. Many were offering free rent or no move in costs. You can’t raise rent when there is a glut of empty apartments in the area. Wisdom not rules is the key to success.

What is the right amount to charge for rent? The answer will vary depending on your objective. Is your primary goal to maximize the amount of money you can get right now? Are you more concerned with keeping your units occupied for the long term? Do you want a large pool of prospective tenant to draw from?

The first step is to determine the rental rate of similar properties.

• Look in the paper for rental ads and call to find out what they are charging. Compare the property to yours in terms of square footage, number of bedrooms and bathrooms, neighborhood stability, schools, shopping etc. Even if the house is not in your area you can still make comparisons.
• Drive around the area your and look for signs of properties for rent. Calling on these properties will give you a good idea of the going rate for the area.
• Check with a real estate agent. They have information on what’s going on in your neighborhood regarding rental and sales.

The second step is to access the market.

• What is the supply? Is there a glut of houses on the market? If there are a lot of vacancies in the area you may have to offer ‘rent specials’ to attract potential tenants.
• What is the demand? Is there something special about your area that makes it desirable? Is the economy good or is unemployment high?

The final step is to detrmine your goal and set a strategy.

• If you want a large pool of tenants to pull from so you can screen agressively you’ll want your rent to be below market rate (the average amount charged for similar properties).
• If you want to rent your property as quickly as possible you’ll want to be below market rate.
• If you want to get maintain your tenants for the long term you want to be at or below market rate.
• If you want the maximum amount possible for your property you must be prepared to spend more time searching for the right tenant. Your property should probably offer upgraded amenities and at least the appearance of being special. You also may want to investigate government programs like Section 8. They tend to pay at the top of the market rate scale if not more.

After you’ve done all of the above you’re ready to set your rental rate. Be brave. You can always bring the rate down if you don’t get a good response. Be patient. It’s better to get the right tenant the first time than have to go through the whole process again in a few months. (See Tenant Screening Tips)

Caution

If you’re renting a single family home your first instinct my be to add up your costs and see how much you need to make the mortgage payment, pay the taxes, pay the insurance and make repairs. These are all calculations you should have made before purchasing the property. If you bought right, the total of these figures should be less than you can charge for rent. If not, you may have to get real creative to get the amount of money you need to stay out of the red. Remember: In general, you buy single family homes for appreciation and not for cash flow. You’ll be lucky to clear a few hundred dollars a month on a moderately priced home.

If you want to keep your rental unit occupied you must develop an effective system for handling tenant complaints. No tenant will remain in a place where major or minor repair problem are not addressed. Because tenants are not owners they often do not feel it is their responsibility to fix anything. Here are some thing to consider for your policy on handling tenant complaints:

1. Your lease agreement should address tenant responsibilites. Things like changing the battery in the smoke detector, shoveling the snow, yard maintenance, replacing fuses, plunging toilet etc. should be spelled out clearly as to whose job it is.
2. Have a direct line of communication. You should have a number where they can contact you or leave a voice message 24 hours a day. If your tenants are computer saavy you can communicate through email. I use a live answering service after office hours. They have instruction to call me for lock-outs and emergency situations.
3. Keep a work log. Whenever you get a call write down the date, time of call and complaint. The log should also have space for the action taken, who solved the problem and the date the issue was resolved. A comment section will allow you to note details of your conversation such as when you promised to do the repair and whether or no it is ok to enter if they are not home. If you have to assign the problem to a sub-contractor, make sure they follow up with you as to when the job was completed.
4. Have a plan for emergencies. Inevitably you are going to get an occasional late night call after you have settled in for the night. First you should pre-determine what an emergency is and convey that to the tenant. I respond to lock-outs (for an additional fee), running water and no heat in the winter. (Sometimes all you can do is provide a portable heater). Make sure you have on hand the phone number of a plumber, electrician, the gas company and other tenants in a multi-unit building that might be the cause of or victim of a leak.
5. Be realistic. If you give an honest estimate of when the repairs will be completed you are better off. If there are going to be additional delay (maybe parts have to be ordered) communicate that fact to the tenant. Most tenants are reasonable if they are not left in the dark. Open communication is the key to good tenant relationships.

Getting a good tenant is one of the most important tasks you will face as a landlord. Although you may be tempted to take the first person with money in hand, that is not a good idea. If you get a bad tenant it could take up to two months to get them evicted once you start the court process. Savvy tenants can prolong the process even more.

The screening process is designed so that you can learn as much as possible about the character and financial stability of the person to whom you are going to entrust your property. Everyone that has the ability to pay may not pay and may not take care of your property. Here are some tips to guide you through the process.

1. Be aware of Fair Housing Laws. Being consistent with all applicants will help keep you out of trouble. You must establish qualifying guidelines and administer them equally to everyone you talk to. You cannot discriminate against a person because of their race, sex, religion, sexual preference, looks or smell.
2. Use an application. The application should request information about their residential history, job history, criminal history and credit history. It should ask for personal references and emergency contacts. It should also give you permission to check their credit, contact their previous landlord and contact their job. Along with the application require a letter from their employer stating their starting date and weekly income. In addition, they should give you a recent pay-stub.
3. Identify the applicant. At a minimum you should get a state issued picture ID and social security card.
4. Establish guidelines. Set a minimum net monthly income (at least three times the rental amount). Set a minimum amount of time on the job (1 year is good but you can accept less if they have been working consistently).
5. Require documented income. If they don’t report their income to Uncle Sam you shouldn’t accept it. Besides, you can’t have a collection agency go after ‘under the table’ income should they fail to pay you.
6. Do a credit check. It will only cost you about $10 to get a report from one of the credit reporting agencies. If the report is crammed full of collections you have to wonder whether or not they will pay you. You might accept credit that is slightly blemished but beware of anyone who has judgements from previous landlords.
7. Verify everything. Call the employer. Call the previous landlord. If they say they live with their mother, call her. Check the credit. Check the criminal background. You’ve got to know who you are dealing with.
8. Trust you instincts. If you feel like something is wrong you are probably right. If you dig enough you will find it.

Don’t be hasty. You want a good tenant who will be with you for a long time and take care of your property. Ultimately, your success in this business will hinge on your ability to attract and keep good tenants.

Don’t get caught up in the hype of owning investment property without considering whether or not you would make a good landlord. Here are some things to consider:

• Are you even tempered? Tenants come in all shape, sizes, and dispositions. If you’re lucky you’ll get one that pays his rent on time and never complains. However, this is not necessarily the norm. Are you prepared to be cussed out when you call and ask for the rent? Can you stay calm after the fifth late night call in less than a month? You need to be able to remain calm in any situation. An irate tenant could do serious damage to your property.
• Are you organized? You must be able to keep good records to win at this game. Of course you must always know how much your tenant owes you at any given time. But you also must keep up with all the expenses related to the property. Every bill you pay is tax deductible. One of the beauties of rental property is that there are a vast number of deductions you can take to reduce your tax liability. This includes the mileage you put on your car when you’re dealing with rental property business.
• Are you financially stable? Yes, Ive read all the ‘buy real estate with no money down’ books but a word to the wise…….. When an unexpected repair happens you better have the money to deal with it. A leaky pipe can destroy ceilings and walls. A leaky roof is even worse. You could end up losing your investment if you do not make timely repairs. In my experience I’ve found that everything takes longer than you thought it would take and costs more than you thought it would cost.
• Are you patient? First you have to wait for the right investment property to buy. Then you have to negotiate to get it at the right price. If not, you might find that you have overpaid and despite all your efforts you can’t make any money. Believe me, you will not relish the title ‘Landlord” if you are not being paid to do the job.

Being a landlord can be rewarding and fun or it can be a nightmare. Make sure it’s the right job for you. There are lots of ways to make money that won’t cause you to lose sleep or pull your hair out. Being a landlord is for those who are right for the job.