The Cost of a New Tenant
Written by Connor Swalm
Jaime: Well hi there! My name is Jamie Swalm and I’m here with Connor Swalm and we are the hosts of the Landlord’s Resource where each week we provide practical content to empower landlords. Connor how are you doing today?
Connor: I’m doing great today.
Jaime: Alright. Well good week, we just on-boarded our most recent property, so good stuff. Well today are we going to be talking about the cost the moving a tenant in. So the goal of landlords like yourself ultimately is to move in a high-quality tenant and have that tenant then begin to pay the rent and so there are costs associated with that it’s important for your tenant to understand. It’s important for you as an owner understand, if you are also your own landlord it is important then for you to understand those landlord costs. If you have a property manager then the property manager has some costs as well. And then at the end today we’re going to give you our best pro tip on on how to get the best tenant. So are you ready to go?
Connor: I’m ready.
Jaime: Alright well let’s start with from a tenant’s perspective. Their goal is to live in your home and their goals have a real positive experience in that starts with a positive moving experience. So from a tenant’s perspective, what can a tenant expect when they are moving in?
Connor: So there are a lot of fees that a tenant can expect when moving in. A lot of them are pretty standard but they all add up and so a lot of tenants actually, when they apply they asked us exactly how much can they expect to pay when moving in and honestly it’s different for every tenant depending upon a couple of things. The first the first thing that a prospective tenant is always going to have to pay regardless of everything else is the application fee. For us over here at Swalm Property Management, our application fee is $35 per tenant over the age of 18. We require every person living in the home over the age of 18 to fill out their own application for the insurance of most of our homeowners require that every person above the age of 18 be screened or at least named in their policy or that the insurance company is aware that the tenant would be there. So every person of the age of 18 is required to pay the $35 per application and that includes a full background check, full credit history, previous living situations like evictions, rental history and what not and also criminal at the state, national, and county level on around the the nation. So every state, every county in around the entire nation and so it’s actually a very very extensive criteria that we apply, very extensive application and background check and some property managers charge more than $35 some charge less. It really depends upon the quality of background check that you’re getting, so we actually have a very high-quality background screening service that we use. So we actually end up paying internally a lot of money to get this background checked on where the company has their own Court Runners to get a local documents. The company has the connections with the credit bureaus to get all of the credit history and all that. So it’s actually a very expensive process and that would be $35 per applicant. The second and probably the easiest to predict that you have to pay when moving in as a tenant is the security deposit. Typically that’s one month’s rent in Delaware unless there’s a couple of corner cases. The most you can charge for security deposit is one month’s rent. So let’s say about a thousand bucks that’s probably about the median rent here in New Castle County Delaware, so you can definitely expect to pay that. The second and also very easy to predict is first month’s rent. If you move in on the 15th of the month you just prorate the rent per day so we take, say $1,000, there were 16 days left in the month and we just do a thousand by 31 times 16 and then we would get a prorated monthly amount and then you have to pay that. Another fee that is also somewhat easy to predict but different per tenant is the pet fees. In Delaware, the maximum that a landlord can charge you for a having a pet and some pets can and can’t be named on homeowners insurance policies is one month’s rent. So the most you could do is one month’s rent. We typically don’t see that maybe half a month’s rent, three hundred fifty bucks something like that. They just keep it aside in case your pet happens to do some damage to hardwood floors, which does happen, or if let’s say you have a cat, it’s very hard if a cat urinates on the carpet. To get that out you actually end up replacing the carpet and the the sub carpet, the padding underneath. So it’s actually very expensive if that happens and also sometimes we have to repaint the walls if there’s damage to them, stuff like that. A couple other fees that might not be as predictable are, one: moving fees. So if you’re in between homes, which you likely are if you’re trying to rent a property, sometimes your previous living situation doesn’t end on the day that your new one starts so you might have to pay for storage and transportation of furniture. Depending upon how you do that, it could be pretty expensive and also another thing to consider when moving in is you need to enroll in liability insurance. So over at Swalm Property Management we require that each tenant have liability insurance both on their possessions and on themselves as well. So in case anything bad were to happen, there is insurance provided that will cover any damages in the event and we automatically enroll tenants if they don’t want to provide their own policy. They’re happy to go out and get us proof of this policy but we provide tenants with our policy, it’s only $12.50 a month so it’s pretty cheap for the amount of protection you’re getting but a fee that a lot of tenants don’t expect to pay and aren’t aware that they’ll be paying directly when they move in. So that pretty much wraps up all the tenant fees that you can expect. Other than those fees, you really shouldn’t expect to pay much more than that. There aren’t aren’t that many fees associated. Maybe if you’re living in a hotel for a couple days but then again that would be a very case-by-case basis.
Jaime: Yeah and I would add that a lot of this is state-specific as well and so it’s very important that you as the landlord know the laws of your state. We are located in Delaware so we know those laws thoroughly. But we have seen landlords in the move in process charge the wrong fees or charge too many fees or charge too much for like let’s say a pet deposit and what not and then on the back end if there is a dispute, have a problem with the tenant actually in court with those things and some of the fines for a landlord, I know in Delaware can be pretty steep if you do the wrong thing. The other thing I would say is that in general as a rule of thumb, the more positive the move in experience for the tenant, generally the more positive experience with the tenant as a renter is going to be. So it’s very important to set the expectations and standards up front of how the tenant is expected to behave and perform and so generally it’s important to have as positive of a moving experience as possible and sometimes there’s a lot of moving pieces. So we also have a sales team that we work with and so recently we helped a first time investor find their first investment property and it was a duplex. We ultimately made an offer and that offer was accepted. So Delaware is called the attorney’s state so an attorney does all settlements in Delaware. So at the set on the table, one half of the unit was occupied during the transition, the other half was not occupied so it was a process of transferring security deposits, the tenant that was living in one of the units have prepaid some rent for the following month so all of those checks were done at settlement and just created a very smooth moving process and then and we were able to tenant the other half of that duplex actually pretty quickly. So the point is that it’s detail intensive and it’s very important to get all of those details correct in the moving process. So let’s talk about landlords. So if you are the landlord of your own property, remember being a landlord is different than being an owner. Being a landlord means that you were the landlord of the property you can be an owner and a landlord or you can be an owner and higher like a property management company like Swalm Realty to be your landlord. So on the landlord end of it there are costs that are incurred as well so let’s let’s share a little bit about those costs.
Connor. Yes, so as a landlord, there are a couple of things that you can definitely expect to pay regardless of how you conduct a showing and a move in. There are definitely a lot of similar features that all landlords can expect to pay. One of those and if you’re not paying this I would highly suggest that you contact a professional property manager. If you’re not paying for professional background
checks, every time you tenant a property it’s a crap shoot. You don’t know if you’re going to get a good tenant or bad tenant. You could do all of these background checks yourself but if you’re not paying for a professional to professionally screen your tenant, you’re not doing yourself and you’re not doing your property owner the service that they deserve. You should definitely pay a professional either a property manager or you can hire a screening company yourself and have a relationship with that screening company. We have a relationship with a nationwide screening company, we pay a very good amount of money to get these background checks done and they are extremely expensive and extensive for everything that we want done. We want to know exactly what type of person is moving into an owner’s property, we want to protect this property like it were own and the best way to do that is to get a tenant that we know they are who they say they are, they have the credit history they say they do, they can act responsibly as they tell you they can and the best way to do that is to get the tenant professionally screened. So you should always pay for professional screening. You make all of your money as an owner as a property manager when you tenant the property correctly. So if you tenant the property incorrectly, months of headache, thousands of dollars wasted but if you get a great tenant in there, could be years and years and years of good income, solid steady rent and very very minor issues if any at all. So you definitely make all your money when you tenant a property correctly and the first step to doing that is to professionally screen them however you want to do that. The second is you need to prepare the property for rent so that requires you sending someone over there if you do unassisted showings you’re going to need someone to go over there, you’re going to need to take the listing photos, you need to take the advertising content, whatever you want that to be, there need to make the advertising description, sometimes it takes a lot of time, you need to go work with the owner to decide what the rent at the property is going to be. So there needs to be a little bit of prep part-time done for us over here at Swalm Property Management. It’s not really a huge investment of time but there is an investment there nonetheless, you need to take into account the the cost of time and the cost of maybe you have an employee doing all of that. Maybe even get your property professionally photographed, maybe that’s not an item that brings in prospective owners and so you can also need to factor that into your cost when when trying to rent out the property. Actually another thing you can expect to pay and there are two camps of property managers and owners here is, if you personally show the property yourself or have an agent of your company do every showing or you have unassisted showings. So I know a lot of property managers that do both, some consider in person showings to the old school and some don’t trust these unassisted showings. Personally we do unassisted showings over here at Swalm Property Management. We had never had a problem with them, it is always been an extremely smooth, easy process with every prospective tenant that applies. We’ve actually gotten a lot more interest in properties because they don’t have to schedule the when they show the house around our schedule. So even if we made 9 to 5 p.m. availability, 5 days a week, there’s still a lot of tenants that work all day during the week and they can only look at it on the weekend. So if you don’t show weekend availability then maybe you missed out on a couple tenants being in the property. But we’ve seen that when doing unassisted showings, we get more leads at every property, we get more applications and as a result we get a higher quality tenant in the property. And it’s actually very safe, our process. We actually use Tenant Turner which requires the prospective tenants to upload a photo of a government ID whether that’s their passport or the driver’s license or some other type of identification and that pretty much right there after going through around a pre-screening questions, pretty much removes any ability for the tenant to hurt the property at all. Like I said we’ve been doing this for quite a while, unassisted showings by the way and we haven’t had a single issue with it. Maybe the most the most problems we had with it is that a tenant couldn’t get into the box and then we call them right when we get that message and then we show them how to get into the box 30 seconds later. That is the only problem we had with it and it rarely ever crops up. Another thing that you can expect is meeting at the property to do a move in inspection. So every landlord is different, some will charge for the move in inspection, some do it free, some have a higher up in their company do it, some have an agent of the property manager do it. It really just depends on how you handle things internally but you can definitely expect to spend sometimes up to an hour at a property photographing, documenting and working with a tenant to make sure that the move-in condition is 100% accurately documented both for your safety and for the tenants safety as well. So that could be a significant amount of time depending upon how big the house is, how much damage needs to be noted and how much work needs to be done working with a tenant in making sure all the pictures are taken and that they report everything if you don’t catch it on your move in inspection. And then I have another thing that you can expect as a landlord which a lot of a landlords seem to not catch or not think about directly when moving a tenant in the property is communicating with all of the prospective leads that don’t fill out an application. So let’s say for 10 people who will give you a phone call, one will apply so if you had 10 applications, you’re at a hundred phone calls, that is a significant amount of time that doesn’t include emails, that doesn’t include people that called multiple times, that doesn’t include going to the property to show it yourself, that doesn’t include directing them to the marketing information. So when all is said and done, marketing and showing and moving a tenant into the property can be a very time intensive process. So communicating all of those leads is very time intensive so we highly suggest streamlining that process as much as possible because it is honestly one of the most time-intensive things that we partially do at Swalm Property Management and we know that other landlords do as well because there are just so many people that are interested in this property because of the way it’s marketed. We market on 88 websites now. Whenever we list the property, it’s immediately put out, that leads to a lot of interest and so we definitely get a lot of interest, lot of leads, having a lot of phone calls and so that’s a big amount of time.
Jaime: Yeah and we’ve actually seen with the self showings that it’s just a little bit counter intuitive that we do get more tenants applying and higher quality tenants and actually the prospective tenants actually enjoy seeing the property by themselves more because then they’re able to take the time that they need, it’s not awkward with somebody they’re showing on the property. And two mistakes that I see landlords make who are owners often is one, they don’t have a buttoned-down screening process and often simply kind of go by feel and it’s very important not to do that. So we get that on the surface that sort of sounds good, I’m going to go by my intuition, I’m going to go by my gut feel. We see so many applications on a weekly basis, so many detailed reports on background and screening reports that we’ve got minimum criteria that become kind of the initial sifting process and it is very important to have that so you’re making a decision on which tenant are you going to put in there less on feel and more of a matter of your processes and your systems and standards. Very few owner landlords that we talked to have that level of system and the reality is, the difference between putting a great tenant and a not great tenant in your property is worth thousands and thousands and thousands and thousands of dollars. The horror stories that we could tell you about that we have experienced with the properties that we’ve taken on that were already tenanted. That had tenants issues that were put in there and what their cost the owners and we could go on all the time about that. So super important to have a standard. The other thing is a lot of owners that we talked to want to personally meet the tenant at the property and it comes from a sense of saying, okay I want to meet the tenant that is going to rent my property because I’ll be able to interact with that tenant, and in some way based on that conversation I would be able to tell if that person is going to be a good tenant or not a good tenant. And I can say that it is impossible to do that with any accuracy. We have seen people present in an amazing way that just have not been good tenants, we have seen people that maybe we would have thought would have been be the absolute best tenant, we have seen professional tenants that are so good at the game that they have discount for property to property, taking advantage of owner after owner and they’re so good at it, it is virtually impossible to tell. And so at a minimum we highly recommend that an owner do not try to tenant their own property that at a minimum,I would recommend that you hire professional help even if you want to manage it yourself because managing it, there’s less risk in managing it than in tenanting it. So even if you want to manage it then I would highly encourage you get professional help to tenant it and then go ahead and manage it if that’s what you want to do. Would you agree with that?
Connor: I would 100% agree with that and let me add one more thing. You may not think about it when you first hear it but if your answer to what is my screening criteria is a gut instinct, that’s a huge risk. That opens you up to a discrimination case. So there are a lot of stories that I’ve heard where the only reason someone’s rejected is because of a gut instinct and all it takes is one allegation, one accusation and all of a sudden you’re in court fighting a multi thousand dollar lawsuit because your gut feeling was your criteria
and not a document that you discussed and that you sent to the tenant. So right there just having those criteria completely reduces that ability for anyone to make that allegation because you rejected them based upon a minimum criteria that they did not meet, not because you saw them at the property and maybe they shook your hand and it was a little limp. It’s just when you get into that gray area of your gut feeling, all sorts of problems start to arise. Look on some property managers website, look on our website if you wanted to find our minimum criteria and then just take them as your own or set your own minimum criteria. Every property manager has their own minimum criteria and all of them serve their own small little different purpose but the one thing that is common is that every property manager who is doing their job well has a minimum criteria set and no tenant below those criteria even gets looked beyond screening. And so it protects you as an owner to have those minimum criteria in place. Highly recommend spend some time, get some minimum criteria, put them into effect and then anytime someone wants to apply, you hand them the minimum criteria and you say hey just take a look at these before you apply just so you know the type of person that we,re looking to tenant this property. It’ll protect you, it’ll save you months and months and months of headache potentially and thousands of dollars in in potential lawsuits.
Jaime: Yeah that’s a great point because then if you do have to be before a judge and you are being sued because of a discrimination case and it’s very simple, well your honor here are our criteria that we apply equally to every individual that apply and mr. and mrs. X did not meet that minimum criteria and that is why they were not accepted for the the property. Open shut case, no issues, no drama. But without that minimum standard then suddenly that becomes something very different so yeah great point there. Alright so 3rd area is there are costs to owners in a move in process and so let’s talk about that briefly.
Connor: So any owner that is going through a re-tenanting process is very familiar with these fees. There aren’t that many fees but they are sometimes big ticket items depending upon the quality of the home and also the situation the home was in before being shown. The first thing in the most immediate one that comes to mind is doing any necessary repairs to get the home in running condition. So that looks different for every home, maybe you have a C-Class property that will be renovated a different way than a high-end property. But you always need to get those necessary repairs done whether or not you contract those yourself, you do the maintenance process, you get all the subcontractors and then you hand it to the property manager, or maybe you have your property manager conduct all those repairs for you. Whatever the situation you decide to go into, whatever the route you decide to take, you’ll have to pay for those repairs definitely, so that is a huge cost that sometimes owners have to take in. So definitely that’s the one that comes to mind. The second is, any changes in your insurance policy. So if you have let’s say a duplex and you just bought it or let’s say you renovated a home into a duplex you might have additionally insured and you might need to get a new insurance policy depending upon your provider. So that’s one thing homeowners don’t really think about, doesn’t come to mind right away, is any changes to your insurance policy, may be any changes in the deductible you’ll be paying or what-have-you, your monthly fees. So definitely think about that, consult your insurance rep when and making any changes to the property. Maybe you went from one person living in the home to now a family with four or five kids lives in this home and that could be a huge difference depending upon the plan you have and a lot of other little factors. The 3rd and the final fee that owners can expect to pay when re-tenanting a property, moving a tenant in, is the leasing fee to your landlord. So every property manager is different and if you’re acting as your own landlord maybe and you’re tenanting your own property, you won’t have to pay this to yourself so you can disregard this completely. But if you’re paying someone to professionally tenant your property, which I would highly recommend at least consult someone like that so you can learn how to do it yourself. You’ll be paying a leasing fee that person. We’ve seen a free leasing fee just to get you to sign a property management contract for a year, we’ve seen 50% leasing fee which is what we personally do and we’ve also seen a hundred percent leasing fee if you don’t want them to manage your home. So it’s different depending upon what landlord you choose to go with but you will definitely pay a leasing fee.
Jaime: Yeah that’s true and the other important point you made there was about insurance and insurance is a big deal. So we coach a lot of landlords, we coach a lot of Real Estate Investors and typically if you’re like most owners, your goal is to kind of protect your asset which would be your rental property. And also then to grow your wealth through growth in that process. And so we really view our role as your wealth creation partner right now. Not only to protect your investment for you but also then to help you grow an investment in to increased wealth. And then even help you acquire as many investment properties as you want, which we very actively help investors to do. And even something as simple as putting the wrong Insurance on your investment property can be a really big deal now. If nothing ever happens then it’s not a big deal but when it becomes a big deal, it is a really big deal. And even if as an owner you’re holding property in your own name, which we never recommend, or if you’re holding property in the name of like typically an LLC , which we which we always recommend, there are different Insurance structures that you want depending on how you’re holding the property. So Insurance alone can be very complex when it comes to being a homeowner and being a landlord and so is very important for you to have that buttoned up and if you have a question just ask. I mean just reach out and just ask a professional. Hey what kind of insurance do I need on this property and we’ve got relationships with lots of insurance people, insurance agencies and pretty much know exactly what kind of investment you would need so yeah great point on insurance. Alright so in general, Connor, what would you like to close this out with?
Connor: So in general there’s a delicate balance that I’d like to make owners aware of and also property managers, landlords, aware of. So the balance is renting the property quickly versus getting the highest possible quality tenant in the property. Let me just say one thing on that. One, you need to set the rent correctly. Does not mean the highest, does not mean the lowest, sometimes it doesn’t even mean the median rent. Depending upon the the quality of the house, maybe you have the biggest house in the neighborhood or maybe it’s the nicest house on the street or maybe it’s one block in the right direction. So the monthly rent really needs to be set correctly in order to get the proper people looking at your house and applying to your house. And second, if you needed to wait 1 to 2 months to get an A+ tenant in your property, that will always be the best scenario I said it at the beginning of this video and I’ll say it again, you make all of your money as an owner and a landlord when you tenant the property correctly. So if you can do that, well, sometimes waiting one to two months, listen, making one more mortgage payment and having that be the difference between a tenant that’s in the property for 3 years, pays the rent on time all the time, or someone that you have to evict in 3 months, go through a six or seven month eviction process because they know what they’re doing, waiting one extra month, one mortgage payment, one month of taxes, one month of the small amount of utilities in a vacant home, would be entirely worth the wait to get that A+ tenant in there. Now it’s a delicate balance like I said. Sometimes you’ll have multiple people would apply and if you wait too long if your criteria are not matched correctly with that property, you’re not going to tenant the property in the in the time frame that you really should and you’re going to have your owner pay more than they really should for that. So you really need to make sure that your criteria match that property what you’re looking for the rent is matched up with that property as well and that everything is equal and then you really need to have some patience. Sometimes the best thing is just to wait one or two extra months for that A + tenant to really get in there and then trust me, right when that tenant applies, right when they look at the home, you’ll know exactly that the tenant is the tenant you’re looking for and then you can tenant it with them and then you could have a smooth process from there on out for possibly years to come. So it’s really worth the wait on to wait one or two extra months.
Jaime: Yeah absolutely and it’s a huge balance. Remember that investment property we bought where we miscued on the insurance and literally a day before we were closing we realized we didn’t have insurance and we ended up scrambling and 30 minutes before closing, we actually had the insurance coverage bound. But the reality is there are a lot of owners and landlords that end up closing on an investment property and literally forgot that they didn’t have insurance on it. And they actually, literally closed on it because some of those deals were done in cash so you don’t have a company there that’s requiring you to have insurance on it. So a lot of people just slips through the cracks and super dangerous. Just reminded me of that.
Connor: One other thing you might not think about, has a little less to do with property management and more of an investment, if you have closing on a property that you wanna buy, drive to the property before closing to take a look at it, make sure it’s not burned down. You really think that you’d be aware but trust me, when you sign on that line, all liability falls on you. So you wanna make sure 100%, go 10 minutes out of your way, take a look at the property, make sure it’s in the condition you really think it is. Drive by, look at it, and then go to closing. So little things like that, even though they don’t sound important, little things like forgetting your insurance. All it takes is just one match, the difference is just one match between having a great investment property or potentially ruining your ability to invest for years and years to come. So really, do some due diligence, think about that insurance, little things like driving by the property really make a difference.
Jaime: Alright, very important episode today. Thank you for joining us. If folks wanna reach out to us, what’s the best way to do that?
Connor: You can reach out to me personally, email@example.com. You can also go to our website, swalmpropertymanagement.com. Take a look at our content and then contact us through that website if you’d really like to. We’ll be happy to answer any questions. Again, all of the advice we give is Delaware specific but between every state there’s usually a lot in common that we have. Some little things are just a little different. So if you any questions or want some advice, just reach out, we’d be happy to give it.
Jaime: Okay, well thanks for taking your time in joining us. We will see you next time on the Landlord’s Resource.