This week I realized another thing I absolutely hate about managing rentals – the process of finding a new tenant to fill a vacancy.
When I would rather shove splinters of wood under my toenails than do a task, I know it's time to sit down and create a System. Systems are how successful businesses are built. A System is a set of policies and procedures involved in accomplishing a task. A good System can automate an unpleasant task, take the emotion out of it, make it all part of a day's work. It can be typed up into an employee handbook and given to the person I hire to replace myself, so I never have to do it again.
Whatever you do, don't try to skip a step and hire someone without first building a System.
Two years ago we thought it would be a good idea to hire a property manager to deal with the rentals. Surely a licensed pro would do it better than we! Well, these pros have their own systems, and they were not what I was expecting.
This is no knock to them – they have their Systems, and they must work because they are still in business managing properties. Many rental investors want nothing more to do with their properties once they buy them. They just want to see some sort of positive cash flow every month and are very happy to hand the keys to a manager and walk away.
Steve and I decided to build our own management company for our rentals, eventually hiring people to carry out the Systems we design. First we have to create the Systems, during this time when it's just us, self-employed. Yes, it's a major pain in the ass with a lot of trial and error. It's also kind of exciting – we're really building something here! So far I have designed Systems for rent collections: http://thisgingerjustsnapped.weebly.com/blog/rent-collections-a-system
lease violations: http://thisgingerjustsnapped.weebly.com/blog/lease-violationswithout-the-drama
and record keeping: http://thisgingerjustsnapped.weebly.com/blog/what-if-you-could-make-a-quick-500
Last week I promised I'd be setting one up for renting vacant units, so here it is! The first, rough draft anyway.
Venting About Rentals
First, let me just vent about how much I absolutely hate renting vacant units. The voicemail fills up with some of the most unqualified tenant candidates you'll ever meet. For instance – the rent is $650/month, they get $700 from Social Security Disability payments, they can afford it! Right? No. No, they cannot.
A lot of would-be tenants are turned off right away by the Income Question. We have a rule – the applicant's household income must be equal to or greater than three times the rent to qualify. So if the rent is $700, the tenant needs to be bringing in $2100/month. If there's a spouse, boyfriend, girlfriend, roommate, whatever – they qualify as long as the combined income reaches that $2100 threshold. You'd think this wouldn't be hard, but it is. We have a real crisis of underemployment in Luzerne County, PA!
Some people get very offended by the Income Question and react quite nastily to me. That makes my screening process easier – good bye and thanks for playing! My guess is you're probably not big on following the rules of a lease, either.
Then there are the people with pets. Big dogs, two or three sometimes! We are a pet friendly operation , and we will rent to you with three big dogs. But you're going to have renters' insurance and you're going to give us your policy number before you move in. You're going to give us a veterinarian reference. And you're going to pay an extra $50 per month, per dog. So that $650 rent is now $800. Usually that sends them packing, often with a few choice words about my character. And it saves me the heartache of renting to someone who doesn't realize an animal is a real responsibility.
When I finally get someone who meets the income criteria, doesn't balk at the price, and is OK with the neighborhood, the square footage, and the floor on which the unit is located, we can set up an appointment. Great! I block off the time, arriving with the necessary paperwork to seal the deal.
And they don't show up.
A few years ago we began the practice of calling the prospect an hour before the scheduled showing, just to make sure it was still on. We told them we'd be doing this when we booked the appointment, and that if they did not respond we would not be coming. It helped somewhat, but some people had the tenacity to pick up that call, say they were coming, and still not show up!
So you can see why filling vacant units is one of my least favorite things to do! Who wants to go through that? Not I! So I've come up with a System.
Farm Out The Stuff You Can't Stand
I have identified the two things I hate most about the process – screening the calls, and physically doing the showings. I hate these things so much, I am willing to pay money not to do them.
When we were using a professional property manager, they would keep the first month's rent from filling a vacancy. When I had four vacant apartments to fill in April, there was no way I could do it all myself, so I enlisted three friends to help with call screening and showings. When the units were rented, we split the first month's rents four ways: http://thisgingerjustsnapped.weebly.com/blog/self-employed-week-1-filling-empty-rentals
Sounds like a System to me!
My friend Sherri works from home way up in Susquehanna County. She spends most of her day working the phones for wholesale deals, but she does have a little time in the morning and evening to go through the Google Voice mailbox we set up for renting vacancies. Sherri will go through the messages, return calls and screen the applicants. When she gets a few good qualifieds, she'll schedule them for showing times I give her, and call or Facebook message me with the results.
Then I schedule my friend Illana to do the showings. Illana loves people, and they love her. I would be much happier on a desert island as long as I had wifi, Pandora, and a good book to read. So Illana gets to do the showings! I call her everyday at 3pm and give her the schedule. After each showing, Illana is happy to call me and tell me every single nauseating detail about the people she showed the unit to. She's a talker, and gets a lot of information from them. If they filled out applications, I take it from there. It's ultimately my job to screen the applicants, check references, and approve the tenancy. It's also my job to manage them once their in, but if they meet our criteria it's usually not a problem.
So here's the game plan for renting a vacant unit:
#1 – Advertise – with pictures! Everybody wants to see pictures. At the moment, Craigslist is still free, so I'll put up an ad with lots of pictures there. I can also spell out my criteria in a Craigslist ad, including the requirement that household income must equal three times the rent to qualify.
Use Facebook. I'll put something on my personal status update, as will Steve. But we may also buy Facebook advertising. For $65, Steve bought a Facebook ad for a house we flipped and are trying to sell. For less than the cost of a newspaper ad, Facebook posted our ad on the news feed of everyone within a certain radius who mentioned anything about wanting to buy a house. The phone rang, and people came out to see it!
There are also Facebook groups for people who are looking for rentals. Locally we have Luzerne County Homes & Apartments. I'll post my free ad there after the Craigslist ad is active. That way I can simply send the Craigslist link to all the looky-loos who will message me asking for pictures!
Use Current Tenants. I'm going to send letters out to all my current tenants offering a $100 finders' fee to anyone who sends me an applicant who ends up renting the apartment. It'll give the other five tenants in the building an opportunity to pick their new neighbor!
Use the newspaper. Old fashioned. Quaint. Quite expensive. I usually only resort to the newspaper if Craigslist and Facebook take longer than a week to produce results. The newspaper usually gets the job done. Older people still use the newspaper classifieds to find apartments, and since this is a student area, parents may be the ones doing the apartment hunting. Also, people over 40 make nice tenants.
Return calls promptly, day and night. The reason I farmed this part out was because I couldn't keep up with it, and a lot of calls went unreturned for days. Sherri will check the Google Voice mailbox twice – at 9 or 10am and again in the evening. Calls returned at those times hit just about everyone.
Pre-Screen over the phone. I typed up a little script so I remember to ask about household income (it must equal three times the rent to qualify!) and if there are any pets. I also tell them there is a $25 application fee that covers the cost of the criminal background check we are required to run on every prospective tenant. After all this if they still want to see the place (and actually show up) they're probably a good candidate.
Set up showings during available dates and times, and try to triple up. The tenant moving out says we can show her place after 5pm weekdays and anytime on the weekends with 24 hours notice. So if Sherri is screening an applicant on the phone at 10am and wants to see the place, she'd make the showing appointment within that criteria – say, at 5:30pm Friday. If I were showing the unit myself, I'd try to get the next two appointments to also come at 5:30pm Friday. I can comfortably show three people the apartment at the same time, and there's a better chance somebody will actually show up. Illana isn't comfortable with multiple showings, so with her I'd schedule the appointments 15 minutes apart – one at 5:30, another at 5:45, another at 6.
Don't stop showing until there's a deposit in hand. I don't hold apartments on a promise. If a candidate gets paid next Friday I'll still show the unit. If no one else gives me a deposit before Friday, they'll have an apartment. If they want me to hold it, I need a deposit equal to the first month's rent. In the case of someone who sees the apartment on Sunday and gets paid next Friday, I would take as little as $200 to hold it until Friday, when they'd have to have the rest.
Remember, it's a numbers game. It may take awhile to find a good tenant, but it's worth the wait. You may have to screen 200 phone calls to make 20 appointments, of which 10 actually show up. This can be nerve-wracking, which is why I created a System. Now it's just another set of tasks in my workday. No need to get all stressed out about it. Especially since I hired help to do the parts of the job I absolutely hate!