One of the most difficult areas when dealing with rental property is the selection of tenants. While it is important that you find tenants that are responsible, financially stable, reliable and considerate, you must always abide by fair housing laws and clearly understand the rules associated with discrimination.

Establishing which criteria are most important when it comes to tenant selection takes careful planning. You should never just rent to a tenant because you like them, or someone else gives them a good referral. Letting your own opinions or the personal opinions of others allow you to make your decision is very risky and can also be potentially illegal. Set up good guidelines and stick to them.

All prospective tenants should be made aware of your application system. You can list your qualifying criteria right on your rental applications. Be sure to state clearly that your system is fair and takes into account that you will be complying with all federal, state or local housing laws. Before beginning any rental process, consult the state and local guidelines for fair housing to be sure you are in compliance.

Once you know the fair housing laws and how they apply to you, your rental property and your prospective tenants, you can identify additional factors that you will use to rate each tenant’s application.

It may seem like common sense, but you should always verify your applicant’s identification. Most people have a driver’s license or non-driver’s photo identification. Make a copy of this identification and attach it to the tenant application. Not only does this help you verify that the person you are reviewing is who they say they are, but you will have a permanent record to keep in the event that are ever legal issues that arise requiring you to identify your tenants.

You will need a method to verify that the potential tenant has an adequate income to rent ratio. Most landlords require that a tenant prove they have a gross monthly income that is at least three times greater than the rent of the unit. Pay stubs, bank statements and tax returns can be evidence to this. Being unable to verify an applicant’s income is an acceptable reason to deny an application, as there is no assurance to you that the rent will be paid.

Many landlords will run a credit check on their applicants. This must be done only with the applicant’s permission. The results of this credit check will be an indication of how financially responsible the applicant is. An applicant with a low credit score can legally be denied due to the risk. Any potential occupants over the age of 18, along with any cosigners, should have a credit check.

References should be checked carefully. Be sure to obtain names and numbers of current or previous employers, as well as previous landlords. You can verify the applicant’s income source, as well as their history of paying rent on time. Character references can also be helpful, however, applicants are highly likely to provide the names of friends or relatives that would perhaps be less objective. Poor references can be a legitimate reason to deny an applicant. For assistance, contact a Michigan property management company.

Rental property has been a proven way for many to make extra money. However, before you jump in with both feet, it is important to learn many of the “ins and outs” thoroughly since purchasing rental investment property is quite different than purchasing a home for yourself.

In the early 1990s, many investors faced bankruptcy and serious tax problems when the real estate market took a dive. This has caused banks and lenders extremely cautious when considering the investment and the requirements have become extremely stringent for being approved for a rental property mortgage.

When purchasing a home for yourself, especially for first time home buyers, only a minimum down payment is required. For rental property, the required down payment can be at least 15% and even up to 25%.

When looking for financing options for investment rental property, there are several choices. Begin with mortgage brokers and your local bank. Credit unions will often offer excellent rates for customers with good credit. Private lenders may be interested in investing. Finally, there is some FHA (Federal Housing Association) financing that may be available under certain circumstances.

Any financing option will require you to prove that the rental income will adequately cover the mortgage payment, insurance, taxes and any maintenance costs. A larger down payment may be necessary if the ratio of income to payment is not suitable to the lender.

Different loan types may be available. Residential loans are a possibility, but are limited to rentals that consist of only up to four units or if the property will be owner occupied. Larger units may require commercial loan arrangements.

Commercial loans are required for properties of five units or more, and may be required for smaller properties that are not owner occupied. Commercial loan terms and requirements are different from residential loans; mainly in terms of the associated fees and rates. Commercial loan rates are usually much higher than residential loans. Commercial loans also require higher down payments than residential loans. Proof of cash reserves is also usually a requirement.

Some investors will seek private party lending options. Occasionally, a current owner will agree to finance the mortgage for the seller. This option means that the current owner will continue to carry the back loan, while the purchaser will make a down payment and pay a fair interest rate to the previous owner. This option can save thousands in lending fees and provide opportunities for lower down payments, though most owners that intend to sell are truly trying to completely sell the property and make their own financial gain.

There is a type of short term financing called a hard money loan. This option means there is a third party that provides a loan to the investor by purchasing the property for them and taking the payments. This option is desirable when a buyer has less than optimal credit or when the property needs major renovations.

Many traditional lenders offer FHA programs for financing. While the FHA does not lend the money to investors, they will insure the investment which can make the purchase more attractive. This option is most typically found for lower income housing, urban redevelopment or other community improvement situations.

Any financing option will leave the possibility for later refinancing if the initial rates and terms are less than desirable, but all costs and possibilities should be carefully considered before any investment purchase is made. For assistance, contact a Michigan property management company.

When you finally decide that it’s time to invest in some rental property, you will be eager to get your business started. However, you need to be certain that you carefully understand several things about investment property to make sure you can be successful in this endeavor.

The first thing you need to carefully examine is the potential for rental income from your investment property. Find out if the property is currently rented, or if it has been rented in the past. You can get the rental income numbers from your real estate agent, and then you should compare it to the current market in that area for that type of property. When you determine that previous rents have not been right on for the market, either higher or lower, then take that information into careful consideration so that you have a realistic idea of what to expect for rents.

You also need to know what the current mortgage rates are and what types of mortgages are available to you. Your specific loan details may be unique, depending on the property that you already own, your credit score, and what type of property you are trying to invest in. Investment properties have different mortgages than primary residential properties. Additionally, figure out exactly how much money you will be able to use for a down payment on the property—the more you can put down, the better interest rate you will be able to get and you will pay less interest in the long term. Many people fail to consider the huge impact that mortgage interest will have on their investment return.

Find out exactly what the taxes will be on the property. While using the tax figures from the previous year may give you a good indication of what to expect, taxes do tend to increase a little bit each year so you will have to work these numbers in. Taxes also tend to go up on a property each time it is sold because of updated assessments. Properties that have been previously owner-occupied may have had lower tax bills because of tax breaks available to the owner occupant.

If the property is vacant when you purchase it, you will need to figure in the fact that you will not instantly begin to receive rental income. There are costs associated with getting a vacant property rented—whether you are planning to show the property yourself or hire a listing agency or real estate agent. A good rule of thumb is to assume that your property will have an average vacancy rate of approximately 10%.

Tenant turnover can be costly as well. Depending on your property, there will likely be frequent turnover. Every landlord hopes that their good tenants will stay for the long term, but that is not a realistic expectation. It will cost you money each and every time that you have to re-rent a property. There will be repairs (minor or major), advertising costs, cleaning, painting or other associated costs. Collecting a security deposit from tenants can limit these costs but will not eliminate them entirely.

Insurance is a huge expense. Investment property premiums are much higher than owner occupied rates. So, even if you have a great rate for your own homeowner’s insurance, be prepared for some sticker shock when you get quotes on your investment rental property. Your liability will be higher and the risks to the insurance company are higher, hence the higher premiums.

Making repairs on your own home and making repairs on a rental property definitely are two different things. One thing that must be considered is your budget. Your intent for your investment property is to make a profit, so keeping costs to a minimum is essential. However, cutting too many corners will leave your property unattractive to potential tenants and you will find it difficult to get high quality tenants on a property in need of repair. There are plenty of repairs that can be made on a careful budget that will help your property maintain its quality and remain safe and attractive to renters.

One of the first things you can do to improve the look of a rental property is to replace any old, worn or outdated-looking switch plates. This is a very inexpensive update, basic switch plates generally cost less than $1 each. Even the cheap switch plates look better new than the old, dirty and worn ones.

Doors are another thing that potential tenants will notice. Make sure that your doors all close and latch properly, and that if there are locks on the bathroom and bedroom doors then check to be sure these locks are in working order. Putting in a new door, or planing a new one so that it shuts properly can make a huge difference. Door handles should be secure and not be jiggly or loose, replacing old and poorly working ones is an easy and inexpensive repair that makes a huge difference.

Take a look at the trim work in your rental unit. Any areas that are worn and cracked should be sanded or painted, or replaced, if necessary. This is something that makes any room look clean and fresh, and can help you make a terrific first impression when showing the place to potential tenants.

Make note of what you see when you first walk in to the unit. Remember that an entry way or hallway is the first thing that a potential tenant will see—if they are turned off before they even get into the unit, then you could lose a quality tenant. Hallways should be clean, freshly painted, have sturdy handrails on the stairs, and non-skid mats. For multi-tenant units, it can be beneficial to enlist the help of one of your tenants—for a few bucks break on the rent you can have someone take charge of keeping the hall mopped or swept and looking neat.

Kitchens are a huge selling feature when it comes to rental units. Although it is not always practical to replace kitchen cabinets, sometimes merely a deep cleaning or even a coat of semi-gloss paint, or perhaps new cabinet knobs, can freshen things up and make the kitchen bright and attractive. A rental unit that is great in every way except the kitchen will draw a low rent.

For assistance with any property management issues, contact a Michigan property management company.

The key to successful rental property investing is locating and purchasing the best rental properties that will generate consistent income.

You will probably begin by searching for rental properties on your own, but you may want to enlist the help of a real estate broker who specializes in investment rental properties. Often, brokers will learn of properties as soon as they are put on the market and give you notice before the news is widespread. Brokers may also know the neighborhoods and have useful information about taxes, expected rental rates and more.

Even before you start looking at investment rental properties, you need to have clear knowledge of your finances and have all of your assets and debts in order. Know your credit score, and check your credit report with all three credit agencies for any possible inaccuracies that could get in the way of you being approved for a mortgage. Also, how much you can afford to spend.

Do thorough research on the local real estate market. Doing this can help you ensure that you make a purchase and pay the right price; this will help provide a profit margin large enough to handle any occasional vacancies and still leave you with a profit.

Fixer-upper types of houses present their own particular advantages and disadvantages. The advantage is that the initial investment price can be far lower because of the repairs required. The disadvantage is that a house in disrepair can quickly become a money pit when unseen problems arise. Unless you have contracting and construction skills, it is often best to purchase an investment rental property that is less likely to need extensive renovation.

All investment property should be fully inspected before you make a purchase. Hire a professional to ensure that all electrical and plumbing installations meet the codes, that there are no hazards such as lead paint, and that there are no structural issues that could be unsafe or require potentially costly repairs. A complete home inspection can save thousands of dollars in surprise repair bills and is an expense that you should consider worthy.

Also, before investing, do some research regarding the neighborhood. Not only do you need to know what the rental market is like, it is helpful to know the crime rate so that you can provide proper security for your property and tenants. If rents are on a rising trend, you could be about to make a very wise investment. Conversely, if rents are dropping in the neighborhood, there may be some developments that are causing residents to relocate. Purchasing in an area that has a growing demand can get you higher rents and more income from the property.

Above all, do not rush into investment rental property. Failing to do the proper research and “legwork” ahead of time can result in a poor investment that will lose money. Remember to keep your eye on the prize and have patience to complete all necessary steps of the process and you will have a higher profit margin on your investment. For assistance, contact a Michigan property management company.