How I Find New Tenants Out of State - Weeks 3/4
First, I want to apologize - I wasn’t able to post last Monday and update you on what my 3rd week of looking for a tenant entailed. This was because I was down in Mexico celebrating our two year anniversary! We had an absolute blast, but a few of you did reach out and wonder why I hadn’t posted. So there, now you know, and now you can feel bad for expecting me to post while I should be enjoying time with Mrs Money Smith. I love talking about money and real estate, but everyone’s allowed time off every now and then… At the end of the day, the whole point of this real estate journey is to have the money to enjoy the finer things in life, like time with family or appreciating Mexican wine country, which is exactly what we did!
Anyway, let’s jump into it, I’ll lump the last two weeks into one post to catch you up to speed with my happenings. Since this post is the third in a series, you can find week 1 here, and week 2 here. For a high level recap, this is what’s happened so far:
Posted the unit online
Called my contractor
Started to call potential tenants
Uploaded updated pictures of the unit to the posting
Showed the unit to prospective tenants
Followed up with everyone involved
Presented the potential tenant with an application
What happened recently?
Step 8: Follow up with Applicants
At the end of week 2, I had a pretty good feeling about one of the applicants, and I knew she was interested in the unit. Everything looked like it was going to be smooth sailing. I would have the unit ready to rent out as soon as the contractors came in and renovated the bathroom, and I would have minimal lost income due to vacancy!
Well, last week I learned a good lesson on not counting your eggs before they hatch. The applicant, who initially said that she was eager to see the unit, and met all of our requirements, turned out to be lying, or maybe she just wasn’t listening when I shared what those requirements were. She didn’t actually meet our income requirement and that showed in her application.
For reference: Our income requirement is three times the monthly rent. Since this unit would be renting for $1,500 / month. That equates to $4,500 / month or a salary of $54,000.
The tenant only makes about $45,000 per year between her two jobs. This meant that I had to have a real conversation with her about the fact that of all of our requirements for a tenant, this was one that we couldn’t flex on. She put up a fight and let me know that she would definitely be able to pay the rent, but I apologetically let her know that we would not be able to move forward. This meant that I would have to start back at the beginning and I would have to get more potential tenants in to view the unit.
Realizing that I wasn’t able to effectively screen all those who were interested, and this person was able to get all the way to an application without meeting the criteria seemed like a huge failure on my part. I had already turned away plenty of others who didn’t meet our financial requirements, but somehow this one slipped through the cracks.
As much as I wanted to just sit down in a quiet room and reflect on where things went wrong, I still had a unit to fill, so I decided to just start back at square one. I hadn’t had any other people who went to a viewing request an application, so I went back to my postings and refreshed all of them to help indicate that the property was still available.
Step 9: Stay on Top of the Contractor
I also realized, through week 3 and into week 4, that I wasn’t doing too much to check in with the contractor. He had come out to quote the job a few months ago, and other than confirming the price and when we would start, there wasn’t any actual contract in place. I had been thinking about when I read through The Book on Flipping Houses, which talks about processes for rehabbing properties, and realized that I needed to get some serious paperwork locked down with the contractor, and sooner was better than later!
When I asked the contractor to send me a contract, he sent me a very brief list of what was supposed to be accomplished with the work. I know a lot of contractors don’t necessarily like paperwork, but there was nothing in his “contract” that made me comfortable with the project. I decided that I would take it upon myself to draft up a contract, utilizing templates I had found online. I wrote a 4 page document that listed the scope of the work, but also listed out other agreements that should be inherent in a contract, most importantly of which is that he is not my employee.
That’s an important distinction, because while in my property, if one of his guys gets hurt, I don’t want to be on the hook for any medical damages or anything similar. It took me a good hour or so to actually get the contract set up in a way that I wanted it, but it was worth the time. If this alone can help mitigate potential damages or liabilities for me, then that was an hour well spent. Plus, now I have a template that I can use in future situations where a contractor doesn’t have appropriate paperwork to make me happy!
The only other update with the contractor is that he asked to move their start date to November 5th, which I agreed to as long as they still finished at the very latest on November 17th. I also sent him a list of the materials that I expected him to use for fixtures and he confirmed that he’s ready to go.
Step 10: Lock Down the Tenant!
This is what it all comes down to! I can say that one of the tenants who originally toured the property in the second week reached out to me to let me know that he would be interested in an application. This was great news to hear because our friend Mike had nothing bad to say about them. The only concern Mike had was that he couldn’t speak to the financial means of the applicant. Long story short - the numbers worked out on their application and they are currently filling out their forms for a credit and background check.
Once those checks come back, as long as there aren’t any red flags that come out of them, I will have them sign a lease and they will be ready to move in on November 17th, which is the original time frame that I was looking for. If this screening comes back clean, then I’ll have successfully minimized the vacancy and will have also successfully raised the monthly rent of the unit by $100 per month.
For credit and background screening, we use MySmartMove, this site is connected to TransUnion and does a fantastic job of creating a report and rental recommendation for applicants based on move-in requirements that I’ve set. It’s a simple process that I’m glad I’ve found.
Overall Thoughts on the Weeks
This past two weeks were a nice surprise. I realized that I started to get a little lazy in week 3, and into week 4, knowing that I was going on a vacation and I had other items on my plate. The nice realization I had was that my processes are already in a state that don’t require very much effort from my side. There are minimal touch points for me in the process, and other than scheduling viewings and interacting with prospective tenants, I was able to let this run it’s course.
Sure- I think there are definitely improvements that I can make to this, and that’s something that I plan to focus on once my new tenants are moved in successfully. I can always make a stronger lease, I can always create an efficiency within specific parts of my work, but the major pieces of work that needed to happen are already done. There is certainly a lot that will happen when the contractor actually starts working, and I’m hopeful that will be smooth, but only time will tell there.
So What’s Next?
The remaining pieces of work still to do are successfully moving out the current tenant, getting the paperwork locked down for the new tenant, managing a bathroom remodel from across the country through Mike, and getting that sweet sweet rent money rolling in again. I know the hard part isn’t over yet, but I’m riding a wave of confidence with how this all worked out.
Another big piece of what’s next is to continue to optimize my document system. Currently I use Google Drive to hold all of my documents, it’s great because I have set up a whole system to maintain contracts and current tenant information vs old tenant information, but I feel like I can improve on that. The un-sexy world of document control and maintenance won’t ever go away in this business, but it’s an essential part of what I do. I’ve been doing some research specifically into document signing services, like Docusign, but I don’t know that we’re big enough to justify that expense right now. With just three units and minimal paperwork involved, I’m hoping to find an online signing service that charges a per piece rate that I can take advantage of though I haven’t found one yet.