First Time Landlord? Here's What You Should Know.

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We're coming up on the one-year anniversary of our move from Chicago's Bucktown neighborhood to the Chicago suburbs. 

Like many other families in our situation, we became landlords when we moved.... and not by choice, but by necessity. 

I don't think our situation was particularly unique - we'd been in the city for a long time, had a school-age kid, and wanted to move away from all that excitement. 

But we'd purchased in 2005 near the top of the market, were underwater (or close to it), and weren't willing to take a loss when selling our place. 

In many cases, taking a loss is not an option -- frankly, bringing a big check to the sale means you won't have a down payment on the home you're purchasing




Which brings us back to the one-year anniversary of our move. That date means two things: it's finally springtime in Chicago, and the tenant's lease is expiring in the city.  

When we decided to become landlords, we didn't really know what we were doing. The good news - it's not nearly as difficult as you may believe. 

Here's what you need to know. 

Am I Allowed to Rent This Place Out?

First off, check the terms of your mortgage, and the terms of your homeowners' or condo association (I'll just say "HOA" from this point forward), if you have one. 

In our case, we'd refinanced our condo mortgage about a year prior. The document stated that we'd use the condo as our primary residence for at least one year after signing. That wouldn't be a problem - move-in date was well after 1 year. 

The HOA, in our instance, was a duplex-up, duplex-down 2 unit condo. Our decs and bylaws didn't say anything about whether or not we could rent our place out - and in practical terms, we had 50% of the vote on the matter - and the other owner was considering renting, too. 

Finding Tenants

This one isn't a problem. You're going to be able to find people interested in your property... especially if you price it right. 

In Chicago, the apartment search used to be all about the Reader. Now, it's Craigslist. 

Take some photos - if you've been on the market, you probably have LOTS - and describe your location. It's been a ridiculously hot renter's market in our city - we had a number of great people show interest immediately. From there, it's just a matter of setting up appointments for showings. 

Screening your Tenants

If you're like us, you suddenly have the realization that - wait a minute... these people are going to be living in our house! 

You're going to want to know as much about these people as you can. Keep in mind, you aren't allowed to use any kind of discriminatory rationale for picking one tenant over another. And going with "gut feel" is just going to get you in trouble. You aren't an FBI profiler... you can't read people as well as you think you can. 

You're interested in hard numbers. credit history, criminal history....  whether these tenants skipped out on their last couple of landlords, or had eviction proceedings brought against them. That kind of thing.

But how do you run background checks? How do a couple of private citizens run credit checks on someone? We found a pretty simple answer - TransUnion SmartMove

It was free to sign up for an account with SmartMove, and their reporting is excellent. A combined criminal / credit history background check will set you back about $30. (Check the settings - you can have the proposed tenants pay it as an "application fee", or you can foot the bill.)

However, the really great innovation about SmartMove is this: 

YOU aren't checking the tenant's credit. THEY are checking their OWN credit, and letting you see it.  

It's a subtle difference, but it's meaningful. This way, it doesn't count as a "ding" on the tenant's credit rating, which they'd get if someone else requested their credit score. 

You type in the details about the property you're renting, and you add potential renters names and email addresses. And then you press "send". 

The renters and SmartMove take care of the rest. Within a day or two, you'll have your recommendation. 

Applications?

Last year, we also had our tenant groups fill out applications, which we found online, and which provided basic background information, references, and job information. You can get this stuff through SmartMove - but it can help as a "pre-screener" before you spend money running background checks on everyone who shows interest. 

(I'll link to the application that we used shortly. In the meantime, if you'd like a copy, let me know in the comments.)

This year, we have one returning tenant, so there was no need to run that background check - and we were able to skip right to the credit/criminal checks for her the new roommates. 

Get it in Writing

The next step is pretty standard - but make sure you get it done, as it's easily the most important part. The lease document. 

In Chicago, the Apartment Lease is generally a standardized document, which sets forth all of the rights and obligations of both parties, the term, and the rent to be paid. 

It's going to be on legal-sized paper, which is admittedly kind of an unnecessary pain - (and I'm saying that as a lawyer. Why such long paper, lawyers?) - so you may have to to to the FedEx Office to make your copies. 

Meet with all of your tenants at once, and explain each section of the lease. If they're paying utilities, discuss who the providers are, to help with that transition. 

Make sure that they understand that they are each - individually and collectively - liable for the full amount of rent. If one of them flakes out and leaves, the others have to pick up the slack... or you can go after any one of them for the full amount owed. 

And then get out of the way! You probably still feel some connection toward the house you're leaving - that's normal. But it's not your place anymore. 

TransUnion SmartMove brings a little bit of internet tech to the business of landlording. Now I just need to figure out how to get the rent checks paid via iOS and I'll be set. 

1 comment :

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