When researching ways to make extra side income, you probably came across real estate investments as a viable option. Buying a property and renting it to tenants is a great way to build equity in a long-term investment while generating a little side income each month.
If you’ve never been an investor or spent time in the realm of rental properties, you’ll want to start with some basic research. Two important things to learn about immediately are rental applications, often called a rental apps, and lease agreements. They both play key parts in finding and keeping tenants.
The Rental Application
When a tenant responds to an advertisement for a rental property, diligent landlords have them fill out a rental application. This is not a requirement, but it does help you weed out the good tenants from the troublemakers.
A rental app is a form that requests pertinent information about the potential tenant’s background, particularly their financial and rental history. You could create an application yourself or use a free rental application online, which is the preferred method of the modern landlord. The application asks for highly sensitive information, including tax identification numbers, former addresses, monthly income, and the credit score.
After a potential tenant fills out the application, you are not legally bound to offer them the property. It’s simply a form that helps you to evaluate whether or not they meet the eligibility requirements necessary to live on your property.
Savvy landlords will also run a background check and/or a credit check to determine whether the people have serious stains in their pasts that would make them bad candidates for the rental. You don’t want a tenant who has a history of defaulting on payments or getting into fights — that will simply cause more trouble than it’s worth.
Keep in mind that you must seek specific permission for running background and credit checks. You might also charge a fee to applicants to cover the cost of running these checks so you don’t have to foot the bill yourself.
The Lease Agreement
After you’ve run a background check on a potential tenant and accepted their application, you’ll move on to the next step in the rental process: the lease agreement. This legally binding document will outline all the details of the rental property including the term of the lease (usually six months to a year), the amount of rent due each month, the security deposit, your pet policy, the names of people legally allowed to inhabit the apartment, and other details.
It will also outline the responsibilities of both the landlord and the tenant, including who is responsible for repairs, who will pay the utilities, who covers snow removal and yard care, and other responsibilities.
You might also stipulate in the lease agreement that renters are required to purchase renters insurance in New Jersey or your specific state. This will reduce your liability and help tenants cover repairs in the event of accidental or intentional damage to your property.
Many new landlords use online templates to craft their lease agreement, which can be a good way to get started. However, it’s important to seek legal advice before submitting the contract for tenant approval. If your document features loopholes and unclear language, the document might not hold up if you need to evict a tenant or sue for damages.
These two components of the rental process are essential to finding decent tenants and reducing the risk of damages or rent defaults. You’ve no doubt heard horror stories about bad tenants, and doing your due diligence with the rental app and the lease agreement are the first steps in avoiding stories of your own.