So, you've just bought your first investment property - now it's time for it to start making money for you! In order to realize a positive rate of return, it's important to find a good long-term tenant that will treat your rental with respect. So, how do you go about that?
First, you must advertise the property for rent. There are several ways to do so:
Placing an ad in the local paper (least effective)
Word-of-mouth - don't hesitate to drop it into conversation in your social sphere.
Social media - mention it on facebook... once... don't spam your friends!
Put a sign on the property (you may choose not to do so in an area where there is high incidences of crime targeting vacant homes)
Free ad web sites such as craigslist.org, Postlets, etc.
Paid ad sites such as Zillow
Through a Property Management company that has an active renter call base
Through a REALTOR/Property Manager that will put a professional listing on the local MLS (most effective)
What should go into the listing ad? Most importantly, the price. You can attempt to determine a fair listing price by scouring competitors' ads on Craigslist, realtor.com, etc., or plugging the property address into Zillow or Rentometer.com, but by far the best way to find out competitive price trends is have a REALTOR such as your buyers' agent, your hired listing agent, or Property Manager do a comparative market analysis (CMA) of local, recent, comparative rentals in the MLS. Other things that should be mentioned in the ad are: lease terms such as your minimum lease duration, and deposits; and disclosures as to taxes, utilities, and HOA rules. Many landlords do not allow smoking or certain pets - if this is your policy, state it up front. If the media you are using allows it, have plenty of pictures and an accurate property description!
Your phone starts ringing. You don't want to waste time showing to just anybody, so some basic screening is in order. Does the prospective renter have any pets? How many adults will be on the application? Do they have any prior evictions or judgments, or felony convictions? Do they have credit issues such as unpaid debts? Make sure you are careful not to violate any Fair Housing rules in your screening process.
Once you've shown the home, and the prospective tenant wants to apply, you will need to do some real screening. The best way is to have all adult applicants pay for and fill out one of the many background checks available online. Landlords should first obtain written permission from the applicant to pull credit and verify information presented on the application. The best checks will scour for criminal history, evictions, and credit worthiness. You can also search county court records for criminal cases and judgments. Nothing is stopping you from doing your own detective work - you can find a lot of things about some people online. Once we came across an applicant that had a professional license revoked due to sexual assault on a client. Another applicant had a facebook page that described their indoor flock of canaries and destructive dogs... none of which were listed on the application! You may find that you will show many people the home and have a few apply before you find a suitable tenant. Another thing you absolutely must do is call for references from previous landlords, and call H.R. departments for verification of wages. If the applicant just lost their owned home through foreclosure or short sale, you can verify this through the County Assessor. If they are self-employed, you can ask the application for verification of income/funds available from tax returns and/or bank accounts.
Once you've found a suitable tenant, it's time to write the lease. In Arizona, leases of one year or more must be in writing and signed. Standard leases can be found online or in office supply stores, but it is critical that they follow the laws of your state, as well as Federal Fair Housing rules. Make sure the lease addresses all payment rules, penalties for lease violations, your pet and smoking policies, breakdown of deposits, pool rules, and any other terms of the lease, in plain and clear language. It is always a good idea to have an attorney to review the lease. If you are using a licensed leasing agent or Property Manager, they will likely be using the local REALTOR Association leasing forms or one reviewed by an attorney which should break everything down legally.
Before turning over keys, the condition of the property should be well documented. Take lots of pictures detailing condition of walls, floors, ceilings, widow coverings, fixtures, cabinets (inside and out), counters, vanities, landscaping and anything else you can think of. Taking a detailed video is also a good idea. Pictures and video can jog your memory when tenant moves out and can also settle disputes over condition. Tenants suing landlords over security deposits is an issue on the rise. You should also provide the tenant with a move in form so that they can note the condition of the home. This form can be filled out with the tenant at the time you are turning over keys. Optionally, you can provide the form to the tenant and let them complete it and return it within a specified time frame. (The Arizona Landlord and Tenant Act requires the landlord to provide a move in form.)
Once the lease is signed, the best part comes next - collecting the rent! You should only take the first month rent and deposit via certified funds such as a cashier's check. You can imagine the horror of having the first month's rent check bounce! Your lease should have specified who and when to make out the monthly rent checks. You may want to have a P.O. box for the tenant to send it to, to keep them from showing up at your home at their convenience. If you have done your diligence screening, you should, hopefully, have a great long-term tenant!
If all this sounds too burdensome or daunting, you may want to hire a professional Property Manager to at least handle the leasing process, if not take over the complete management of the property for you.