Less Deposit More Rent
A person asked on the MrLandlord Q&A for input on offering new residents the option of paying significantly less deposit if they would pay slightly more monthly rent. My response is this:
For the last couple of years I have encouraged landlords to consider offering all your future, fully-qualified residents the following option for Move-In Funds Requirements:
- Option A – (Traditional) One month’s rent plus one month deposit or
- Option B – 5% higher for monthly rent plus 50% off normal deposit.
So for example, if you would normally charge $800 in rent, the following would be the two move-in payment options you would offer:
- Option A – Rent $800, Deposit $800
- Option B – Rent $840, Deposit $400
For those with higher or lower rental amounts, simply use the formula I gave above to figure what your options would be. This plan is very easy to convey to new residents. And it’s suggested that the options actually be incorporated and presented in the lease. That way, anyone doing the lease signings or new resident orientation for your properties will not be able to neglect offering the options.
And as you can imagine, sometimes new residents actually ask us before the orientation begins if we can work with them on the deposit. Our response is, “We actually offer you two options right here in the lease. Choose the option which works best for you.”
There’s one other note to readers. Even with just 5% added on to whatever your rent, as long as your renter stays at least a year, the additional rent received over the year combined with the smaller deposit will still be more than the traditional deposit that most landlords require. I mention that for landlords who are concerned that the smaller deposit received will be less money to cover themselves in case of damages after a year.
Those who have attended my boot camps know that with the management systems I implement it’s very rare (if at all) that I have someone move before staying with me at least a year. Likewise, it’s rare that damage builds up to any significant amount during that first year that the resident doesn’t cover while residing in the property.
The Best Thing I’ve Learned…
One landlord reflected on his or her journey over the last five years of getting into rental properties: “The single best thing I learned, Mr. Landlord, is this: “Landlording is a business. Run it like a business. Be the manager. Keep it all business. Demand respect and be respectful, don’t get caught up in drama, keep the emotions out of it (at least in front of the resident); it is a business!”
Look Closely At ID And Pay Stubs
A half dozen landlords were recently scammed out of tens of thousands of dollars in one city. It all started the same way with a prospective resident using a fake ID (one from another individual) and phony pay stubs to help convince prospective landlords that she was qualified to rent their houses. This scam, which is becoming more common, was reported by a news station. And once she moved in, everything went down hill from there, including nonpayment and destruction/damages to the property. In almost all cases, such loss could have been avoided if landlords had taken all of the following three steps:
- Taken a closer look at the ID and pay stubs, to make sure they matched the applicant.
- Verified with the employer that the pay stubs went to the actual applicant and
reflected true earnings.
- ALWAYS run a credit, eviction, and background checks on every applicant.
Add Extra Touches To Move-In Day!
Some landlords go the extra mile to help make the move-in day for their residents a great experience. One landlord asked: “What do other landlords do to keep new residents in the right (positive) mindset on move-in day, instead of them focusing on trying to find something wrong?” He was looking for any ideas, like flowers, a gift basket, a welcome letter, etc.
One landlord responded: “I leave new rolls of toilet paper, paper towels, soap, a sponge, trash bag, Kleenex, a shower curtain, and a few bottles of water. It doesn’t cost much, and it makes life easier for the first 24 hours. My rentals are clean. This includes new or cleaned shelf paper in the cabinets. My philosophy is that you should be able to move in, put your food in the fridge, put your dishes away, and use a bathroom without spending three days scrubbing it. For my one bedroom rentals, I started leaving command strips. Those are not cheap, but it has cut down on the nail holes I have to fill.”
Screening Continues Until
They Sign the Lease
A fellow landlord shared sage advice and a warning regarding some prospective residents on move-in day: “If someone ever gets super-picky on me (on move-in day), I’ll thank them for their time and the lease signing stops right there. I need residents with reasonable expectations. I don’t think flowers or gift cards create that kind of mind-set. It’s either already there or it isn’t. Again, screening is key! Screening continues up until the minute the names are signed on the lease. Lease signing is the last thing I do after everything else is done, including the move-in inspection/walk-through.”
Screening starts by always doing a complete check on applicants through their credit, eviction history, and criminal background. But as a fellow landlord cautioned, until the lease is signed, whenever you are with the prospective resident, continue to look for potential red flags that give indication that this person may indeed NOT be one you wish to rent to, including signs of being overly-picky at the time of move-in. I’ve even had a soon-to-be ready resident show up at the lease signing (new resident orientation) acting as though
they were drunk or on drugs. We promptly discontinued the move-in process. Afterwards, we went back through the process to make sure we had all of our background checks. Sure enough, somehow something was missed.
Yes it is Possible! Increase
Income on 50% of New Residents!
The following is shared to encourage you! Often, because we don’t see or hear real life examples of fellow landlords doing very well in certain aspects of rental management, it’s easy to think or believe that some things are not even possible.
Well, hopefully the following case study will remind you that some things are indeed possible. The example is from a landlord who is able to greatly increase his income on half of all new residents who move into his rentals. The story was shared toward the end of last year from a landlord named Sid in Missouri:
“Last week, another landlord reminded us of the joys of the months with five Fridays (because that usually means getting three “pay-day” rent payments instead of two). I used to not believe this technique would work. Who in the world willingly pays more for rent than needed? That was my thinking, but clearly it is not always true for my residents.
Since I started offering the “pay day” plan a couple of years ago, we’ve seen one out of three of our existing residents switch to it and about 1/2 of new residents sign up for it right away. It’s been a great way to boost profits. Also, I’ve found it makes rent raising more palatable. Instead of raising the rent $20 per month, I can raise it $10 per bi-weekly payment. It doesn’t sound so bad when it’s a smaller amount.
The above tips are shared by regular contributors to the popular MrLandlord.com Q&A forum, by real estate authors and by Jeffrey Taylor, [email protected]. To receive a free sample of Mr. Landlord newsletter, call 1-800-950-2250 or visit their informative Q&A Forum at LandlordingAdvice.com, where you can ask landlording questions and seek the advice of other rental owners 24 hours a day.