Rental as retirement income

[Dash man]

Quote:

Originally Posted by Senator If you select single individuals you are, by definition, discriminating. Use credit score, income, rental history and criminal checks to select qualified tenants. Some states are against using criminal checks...

You're only discriminating if you use their being single as the primary reason for selection. if choosing between a single person and a family where all other criteria are equal, you have to choose one or the other. If you choose the family would it be discrimination against the single person?

I use credit, employment, criminal background checks, and also restrict to no more than two unrelated people living in the residence. I recently turned down a guy and his family who offered a full year's rent up front because he was starting his own business. Though he would have satisfied the initial one year lease, I didn't like his available cash for the longer term. His income from his business was way too low, so he'd be burning through his cash quickly if his business didn't improve. Ended up with another qualified family of three within a day of turning him down.

[JDARNELL]

Quote:

Originally Posted by Amethyst Would you mind explaining how you select for "seasoned, single individuals" without running into laws against age and marital/family status discrimination? Amethyst

My units are 2 bdrm thus not to many families. So if you start out with say a young DINK couple they tend to stay til baby 1 was 2 or 3 yrs old. Marital status is something that has never really come up as the last married couple I had said that when they moved in one of them would have to be carried out in a box. When the wife left the husband had been in a box on the mantle for 5 yrs.

I have had two separate non married couples in the past and I told them that if they split the sheets that is their issue as both their name is on the lease. Typically in my area the tenant demographic looking in this community is going to be divorcee, widower, professional, or maybe a DINK couple. Lets face it upper end market rent will keep some people out of the market by default. I get what the market price will support. Party people tend to not want to live in a community with non party people from my experience so they don't follow thru if they do contact me and we are having an email dialog. My last two tenants have been word of mouth from other people in the community that know me.

If I go out and have to advertise I use rentals.com or militarybyowner.com normally with a google voice number that will send me a text transcript of the message left and even allow me to listen to the call. I provide a detailed description of the property when it is listed. When I begin to make contact with the prospective tenants I always ask them what they are looking for via email. I do not talk to anyone over the phone in person for the first few contacts as I don't have time. Usually after a few email exchanges I will meet them to show them the property. I walk them around the complex, tell them the history, what the HOA rules are etc. Tenants themselves know if they are a fit or not and if they can afford it. No hard feelings either way.

Also most of my places are rented before the current tenant moves out. I have found that good tenants are looking ahead 30-60 days and are checking me out as much as I am checking them out. Usually the current tenant is the one that sells them on the community. I just stand and listen.

JDARNELL

[catman2020]

I just exited a commercial property - did OK financially, but really turned into a second job, and not one that I particularly enjoyed. I know that real estate works well for many people, but as I get closer to retirement, I didn't want to be on-call for issues with the building and dealing with tenant issues. I've got to admit that I'm not the most patient person when it comes to dealing with these kinds of things. If it works for you then - great - but for me, project based consulting in my old field seems like it would be a better fit for my skills and temperament, if I'm looking to augment income.

[Elbata]

I've not been a long term landlord, perhaps that's why Section 8 worked for me.

The place I bought was only $26,000 and I rented via Section 8 for $900/month. The govt provide $810 and the tenant around $90 if I recall correctly. The money from the govt was always there on time, the tenant not. Even a lousy $90 she could/would not pay.

So I owned it for ~3 years and sold for $185K. Safe to say, I made a good investment and it worked for me.

[Hyper]

Many yrs ago we had a rental in Ohio. At that time we could not do anything to a lady w/kids regardless if they did not pay and they did trash the home. Very difficult to get her out and things went very badly. Would never have a rental in a state like Ohio again. State we live in now is totally for the landlord BUT, I'm pretty sure this thread has answered my curiosity. Rural community so there is no chance of high end, only low end but not sounding very good now.

[World Traveler]

I own five properties although I am new to this under two years. I did my homework, I read a lot of books and got a realtor that was very knowledgeable and experienced. Online tools are great. Background and credit checks are a must. My properties are nice middle income SFH. Cash flow about 12%. I get calls every now and then. What I can fix, I do. I have a home warranty company to do the work I can't. I like the steady cash flow and I am willing to let the house go vacant rather than settle for anyone. So far so good.

[Senator]

Quote:

Originally Posted by Dash man You're only discriminating if you use their being single as the primary reason for selection

It's actually discrimination if you use their being single for ANY part of the reason. You should not ask about them being married of not, nor should you ever ask to see or meet their partner. Asking about 'number of occupants' is OK.

A good landlord will have a tenant selection criteria in place BEFORE they even start renting. Things like minimum credit score, income level, rental and criminal history.

My criteria is 625+ credit score, ~4x the rent in income, no evictions and no criminal history. I do not like DUIs, 10+ year old misdemeanor theft or assault charges, or even multiple evictions form 10+ years ago.

I figure something you did a long time ago is still ingrained into your nature, and it's only a matter of time before you do it again.

The fact is, the average renter credit score is ~650+, annual household income in my area is ~56K. Most people do not have DUIs, theft, assault etc. in their backgrounds.

Having solid credit score criteria is the number one way to eliminate bad tenants, bar none. It predicts both payment behaviors, and personal behaviors.

[Another Reader]

Quote:

Originally Posted by Senator It's actually discrimination if you use their being single for ANY part of the reason. You should not ask about them being married of not, nor should you ever ask to see or meet their partner. Asking about 'number of occupants' is OK.

Every adult that will live in the house must complete a full application. Otherwise you will get the application from the partner with the decent credit score, a job, and no criminal history. Not the one that never pays bills, trashes the house, and is a thief.

[Senator]

Quote:

Originally Posted by Another Reader Every adult that will live in the house must complete a full application.

That is absolutely true. And every adult must pass the same background check. I require a decent credit score for every adult; even the 18 year old kid of the family can cause the entire family to be declined in my rentals.

If an 18 year old kid has bad credit, you can assume he/she has behavioral issues.

I do not allow a co-signer, although I have in the past gotten a larger deposit. If a co-signer will not help with a deposit, that they will likely get back, why would they help with rent of paying for damages that they know they will not get back.

You do not have to meet all of the applicants, especially in the showing. At some point, you need an application for each adult, including adult kids, and an ID to verify who they are.

[Senator]

Quote:

Originally Posted by mikefixac I've not been a long term landlord, perhaps that's why Section 8 worked for me. The place I bought was only $26,000 and I rented via Section 8 for $900/month. The govt provide $810 and the tenant around $90 if I recall correctly. The money from the govt was always there on time, the tenant not. Even a lousy $90 she could/would not pay. So I owned it for ~3 years and sold for $185K. Safe to say, I made a good investment and it worked for me.

The appreciation worked, but the tenant/rental did not. You had less than 90% of rent collected. That is why most landlords do not take Section 8. In MN, only ~1 out of 3 take it. I bet it is a lot less now.

BTW, the renter not paying their share is not unusual to have happen, as a matter of fact, it is almost typical.

[Dash man]

Quote:

Originally Posted by Senator A good landlord will have a tenant selection criteria in place BEFORE they even start renting. Things like minimum credit score, income level, rental and criminal history. My criteria is 625+ credit score.

I guess I'm not a good landlord then. I use credit score as a tool in the overall picture, but not a set figure, I look at the credit report as a whole to see what the issues were if any. I once rented to a family with a credit score off around 660, which caught my eye as risky, but found they had lost a house to foreclosure several years before when both lost their jobs after 9/11. Other than the foreclosure they had never missed or were late on a payment for anything. They had recovered and their savings/investments were good and the previous landlord had nothing bad to say. For seven years they never missed a rent payment with me.
My current renters in that property include one adult that has no credit history because he pays cash for everything. The other two have excellent credit history. All are on the lease.
I'm also more concerned with cash flow than a set income amount to determine if they can afford the place. Big income with expensive habits can cause more problems than middle income and no debt.




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[Senator]

Quote:

Originally Posted by Dash man I guess I'm not a good landlord then.

You are right. You are a discrimination lawsuit waiting to happen. There is no way you can evaluate all of your tenants the same way. 660 is a solid credit score for a renter. A renter at 660 with a foreclosure used to be ~800. The problem occurs somewhere ~600 and below. The credit score is a summation of the report.

You should be able to go to a complete stranger, give them your criteria and the background checks. The stranger should make the same decision as yourself.

If you only evaluate a tenant or two every five years, your risk is light. If you evaluate hundreds of tenants like I do, it is much more important.

I also screen tenants for my HOA, 120 units. Only 4 live in owners, the rest rented. I have turned the complex from being a class D complex to a B complex. It was a dangerous complex; there were shootings, no cab pick ups, no pizza deliveries, the police even rented an apartment there to be on-site. It is completely surrounded by $300K homes in a nice suburb.

I even wore a bullet proof vest for a while.

Quote:

Originally Posted by Dash man and the previous landlord had nothing bad to say.

Never rely on a previous landlord. That will get you in the most trouble...

[JDARNELL]

Quote:

Originally Posted by World Traveler I own five properties although I am new to this under two years. I did my homework, I read a lot of books and got a realtor that was very knowledgeable and experienced. Online tools are great. Background and credit checks are a must. My properties are nice middle income SFH. Cash flow about 12%. I get calls every now and then. What I can fix, I do. I have a home warranty company to do the work I can't. I like the steady cash flow and I am willing to let the house go vacant rather than settle for anyone. So far so good.

My BIL uses a home warranty company and has the tenant pay the $50 deductible each time they come out. Interesting concept.

[Dash man]

Quote:

Originally Posted by Senator You are right. You are a discrimination lawsuit waiting to happen. There is no way you can evaluate all of your tenants the same way. 660 is a solid credit score for a renter. A renter at 660 with a foreclosure used to be ~800. The problem occurs somewhere ~600 and below. The credit score is a summation of the report. You should be able to go to a complete stranger, give them your criteria and the background checks. The stranger should make the same decision as yourself. If you only evaluate a tenant or two every five years, your risk is light..

Most of my tenants have had credit scores well over 750, with only the one exception I had mentioned. My rentals have all been higher end and attract higher income tenants. Not likely to be sued because I've always had multiple qualified applicants and choose the most qualified and we use realtors to keep us within the law. I've never met a tenant before a lease was already signed. We do only deal with a few rentals, so I understand your need to be more structured.



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[World Traveler]

Quote:

Originally Posted by JDARNELL My BIL uses a home warranty company and has the tenant pay the $50 deductible each time they come out. Interesting concept.

I have the tenant pay the deductible if they are negligent i.e. called out the warranty company for disposal not working. The tenant clogged it and I charged them the deductible. I'm pretty reasonable. A warranty for me is worth the money.

[jkern]

I had a rental SFH for 12 years and recently own three rental condo's. I've had fairly good luck with the tenants and properties. I had one poor tenant that cost me a little angst and about $1,500.


The two most important items are good tenants and a quality property. You don't want to do repairs on a weekly basis. I do my best to screen prospective tenants, run reports, check jobs and income, and call previous landlords.


With three newer condo's, I have been averaging about 10 to 15 hours per year for maintenance. I had one turnover in the last four years and that required 6 to 8 hours.

[Amethyst]

OK, you said "nice townhomes" originally, so I assumed nice = at least 3 BR. In our area, 2BR =strictly condo apartment.

Now, if your units only have 2BR, they are unlikely to attract families of any size, and will appeal to senior couples and widows (if you have a lot of oldsters in your area; mine is a working people's bedroom community) more than to, say, 3 guys/gals looking to share a place. So in a way, you are really saying that your properties do the "selecting" for you. This is probably a good thing for OP/Hyper to keep in mind...don't build anything with more than 2BR.

If our townhouse hadn't had a finished basement with a bath, we would not likely have had so many problems with the tenants on the lease bringing in long-term "guests" and "babysitters," whom we only learned about when we went to the place to fix or paint something. Tenants are sneaky and shrewd; they know you're unlikely to evict them for having a "babysitter" who happens to be an adult with a futon in the basement.

Amethyst

Quote:

Originally Posted by JDARNELL My units are 2 bdrm thus not to many families. So if you start out with say a young DINK couple they tend to stay til baby 1 was 2 or 3 yrs old. Marital status is something that has never really come up as the last married couple I had said that when they moved in one of them would have to be carried out in a box. When the wife left the husband had been in a box on the mantle for 5 yrs. I have had two separate non married couples in the past and I told them that if they split the sheets that is their issue as both their name is on the lease. Typically in my area the tenant demographic looking in this community is going to be divorcee, widower, professional, or maybe a DINK couple. Lets face it upper end market rent will keep some people out of the market by default. I get what the market price will support. Party people tend to not want to live in a community with non party people from my experience so they don't follow thru if they do contact me and we are having an email dialog. My last two tenants have been word of mouth from other people in the community that know me. If I go out and have to advertise I use rentals.com or militarybyowner.com normally with a google voice number that will send me a text transcript of the message left and even allow me to listen to the call. I provide a detailed description of the property when it is listed. When I begin to make contact with the prospective tenants I always ask them what they are looking for via email. I do not talk to anyone over the phone in person for the first few contacts as I don't have time. Usually after a few email exchanges I will meet them to show them the property. I walk them around the complex, tell them the history, what the HOA rules are etc. Tenants themselves know if they are a fit or not and if they can afford it. No hard feelings either way. Also most of my places are rented before the current tenant moves out. I have found that good tenants are looking ahead 30-60 days and are checking me out as much as I am checking them out. Usually the current tenant is the one that sells them on the community. I just stand and listen. JDARNELL

[SumDay]

Quote:

Hyper - I'm a RE investor and very happy with it. However one thing that you need to figure out is what is your exit strategy. Unlike stocks and bonds, when you decide to finally sell the property it gets strange. As Sunset said, there is a depreciation recapture tax of 25% on top of any other cap gains. Many I've talked to say the best exit strategy is to take it to the grave. Then your heirs will get a stepped up basis and not owe the recapture tax. That is my plan, one house to each of my 2 boys. They can then sell, continue to rent, or move in. Both are in good neighborhoods, and would easily meet the boys needs. Of course, they would need to continue to pay property tax, insurance, and HOA. If you can get over the hump of an exit plan I say go for it, once you have a good plan in place for problems that can and will occur.

As someone inherited real estate, my new motto is "If you love your children, you won't leave them real estate." I sold 50% of the properties at huge losses, just to lighten the burden of dealing with idiots. These are low income properties, but if yours are in a good neighborhood, hopefully they will be a blessing to your children, and not a burden. I admire you wanting to leave them something. Just my .02.

[tryan]

In the days before the internet selecting a tenant was more like detective work ... visiting their residence to see how they live, talking to the boss, talking to landlords 2 prior. I still like these methods more than a credit score.

My best tenant ever had lousy credit due a foreclosure and divorce. Had to move when she remarried and was expecting kid 4.

[Winemaker]

One is exempt from Federal discrimination Laws if
1. The owner occupies one unit of a 1-4 unit building.
2. If an owner has up to 4 SF homes and does not advertise.


As a long time landlord since 1999 who does NOT discriminate, I have been blessed with extremely good luck. I have my criteria, which involves a look at their auto, which gives me a sense of their cleanliness, pride and responsibility. It also involves a driveby of their present residence. Thirty-three percent of their income must cover their housing costs, must have 2 recent paycheck stubs verifying income (because employers are not allowed to disclose.) and they must have a current drivers license that I run a criminal check via PA Court Records. In 15 years I have never had an eviction, and lost money on only one tenant that I chose. Do not take the first person that offers you cash; and think of your tenant as which stock is more likely to pay you a monthly dividend.