Protecting your investment property

Many homeowners at some point will decide to rent out their home for any number of reasons. Hiring a management company or a realtor to find a tenant can save you the headache and aggravation of finding and qualifying a prospective tenant. If you decide you want to handle this process yourself, here are a few tips to ensure that you get the best tenant and that you protect yourself.

When writing the ad, make sure you are very clear on your expectations. If you will not be allowing pets make that clear in the ad so you don't waste your time showing the home to people that plan on bringing Fido and Phoebe with them.

It is critical that you understand the federal fair housing act as well to protect yourself from a potential lawsuit. For example, you cannot advertise that the home is best for a single woman. There are rare instances where you can be more selective about your tenants but these can vary from state to state so you should take the time to understand the laws in your state.

When showing the home, this is a good opportunity to ask questions. Again, it is important to avoid any questions that could be perceived as a protected class for anti discrimination laws, such as asking what church they attend or if they plan on having children. You should ask about their housing history, their work history and about their needs for a home.

Every applicant that is interested should fill out an application. These a readily available on the web and you may want to find one specifically written for your state.

One thing I always do is to tell the applicant that I'll be running a credit report on them and I ask if there is anything I should know and that they would like to explain now. Most of the time, a perspective tenant will tell you if there are issues and this could save you the expense of running a report. There are services available that will run credit reports for perspective tenants. Make sure your application states that a credit report will be pulled and that the applicant has given authorization.

You should absolutely confirm their employment history with their employers as well as contact their former landlords for a reference.

Once you have chosen a tenant and you are comfortable with them, make sure you use a lease that has been written specifically for your state. Housing laws vary from state to state and you should always use a form dedicated to the state you are leasing in.

It is important that both you and the tenant understand all the terms of the lease. You must also understand how to handle any prepaid rent or security deposit. There are very specific laws regarding the handling of these funds and failure to follow your state's guidelines, could cost you a lot later.

I always suggest taking photos of the entire home, and printing them. Have the tenant sign or initial each page of photos that they agree that this is the condition the home was in the day they took possession.

Once they have moved in, remember that you are responsible for everything defined in the lease and this usually includes making sure their plumbing works, the HVAC system functions, the appliances that you include in the lease are operable, and that the home is safe. You should respond to tenant requests as quickly as possible and try to put yourself in their shoes. How would you like it if your one and only toilet broke and someone told you that you would have to wait a week for a replacement to be installed?

When a tenant moves out, it is important that you do a walk through with the tenant. Have a camera and a check list and note any damage that the tenant did and have the tenant sign off on the check list. It is critical that you understand the difference between damage and normal wear and tear. For example, a tenant lives in a home for 8 years and when you do the final walk through, there are wear marks in the rug by the front door from all of the traffic. This is not damage but normal wear and tear. Your home was not locked in a time capsule and you cannot expect it to look exactly as it did when they moved in. If their dog tore up the carpet then that would be damage. Get estimates immediately, or better yet, have the repairs done immediately, and keep all of your receipts.

You are limited as to how much time you have to notify the tenant of the damage and how much of their security you are keeping. Depending on state laws, within the time frame required, send the former tenants a certified letter with proof of all repairs made with a check for the balance of the security deposit plus any accrued interest where required by law. If you have handled yourself ethically, this should be the conclusion but just in case they feel that you took more than you are entitled to, keep your evidence in case they file for arbitration or litigation depending on your state laws.

If you follow the law and screen your tenants well, you should avoid any of the pitfalls that can occur when you lease your home.