Buying Investment Property


Last time, we took a look at the reasons why it is still a great time to invest in real estate. There are many types of investment properties ranging from multi-family homes to a vacation rental. This week, we’ll focus on real estate investments that include tenants. Many investors will focus exclusively on the acquisition of a property and the long term management of tenants that occupy it. Many first-time investors gloss over an important part of the process: establishing the landlord-tenant relationship. Here are the tips that you need to know before a tenant moves a single box into your new property.


Why Can’t I Save Some Money and Find My Own Tenant (on Craigslist)?

There is a recurring theme in many of our articles and that is: utilize the services of a Real Estate Professional. Finding a tenant is no exception. First and foremost, a good agent will act as a screen, minimizing the risk of getting saddled with a crummy tenant. Though you probably already have a general idea from information gleaned from your research before buying the property, an agent will also help you set the proper rental amount for the market. Perhaps most importantly, finding your own tenant will increase the likelihood that you will have to re-read our next article dealing with the eviction process in Massachusetts.

What do I need to do to Protect my Investment?

Your property is a valuable income-generating asset. The wrong tenant can cause damage to the premises, disturb your other tenants, and occupy your property while not paying rent, here are four quick and inexpensive ways to minimize the risk of being hitched to a bad tenant:

  1. Check their Credit Report: Documented history of timely payment of debt is a useful indicator that the Tenant will make timely rental payments to you. Further, making payments on time is a hallmark of a responsible consumer which supports the inference that the prospective tenant will treat your property responsibly.
  2. Ask for References: Some clients are surprised to hear this, but who would be a better judge of a tenant than their prior landlord? If the tenant refuses, that supports the inference that they didn’t get along with their prior landlord and that they may not get along with you.
  3. Don’t Settle: This is the time to trust your gut. Meet with your prospective tenant face to face. Your life experiences should give you a good idea of how they will perform. While you certainly want to push cash flow into the black, don’t settle for a tenant that you feel isn’t going to be a good fit. You may be able to cover your new mortgage payment, but you’ll likely spend many thousands of dollars (and many hours wishing you listened to your gut) to fix your new headache.
  4. Call Back: Call from a few different phone numbers that the prospective tenant won’t recognize. If they don’t answer, they may be ducking other creditors.

So I Found a Tenant–Now What?

  1. Get it in writing: Let me say that one more time: get it in writing! Your experienced attorney who helped you purchase the property can also help you to draft a written lease. This document will guide the landlord-tenant relationship. Resist the urge to use a form lease you found in a dark corner of the internet as most are not well drafted nor designed with Massachusetts law in mind. A written lease settles issues ranging from the monthly rental amount to the types of pets, if any, your tenant can keep. In the event of a dispute, it will be helpful to reach an expedient solution. Be sure to provide your tenant with signed copy of the lease as soon as possible.
  2. Establish a Record of the Property Conditions: We all carry a camera in our pocket–now let’s use it for something more useful than taking pictures of your food and posting it online! Before your tenant moves in, take pictures of every room, every fixture, down to the last detail-preferably with the tenant in each picture. If your tenant is camera shy, email the pictures to your tenant and ask that they respond with an acknowledgment that each is a fair and accurate representation of the current condition of the premises. It’s tedious and feels silly, but in the event of a dispute, you’ll have strong evidence to refute your tenant’s claim that the damage was a preexisting condition.
  3. Hold Your Tenant’s Money Properly: Nothing is more deflating in an eviction proceeding than the tenant claiming you’ve mishandled her money–especially the security deposit. This mistake can cost the landlord thousands of dollars in damages and months of unnecessary legal proceedings. Save your deposit slips. Keep a ledger of every payment with the date, amount, and what the payment is being credited to (remember: unlike a mortgage, rent is paid in advance–usually on the first day of the month). Contact your attorney for advice on this subject.

These tips should help to protect the hard-earned dollars that you’ve invested in your new property. Additionally, and perhaps more importantly, it will help you to avoid the eviction process. If you are forced into that undesirable situation, these tips should help you to prevail, more quickly, more inexpensively, with less inconvenience.

Stiles Law, with offices located in Boston and Marshfield, Massachusetts, is a firm concentrating in real estate conveyancing and mortgage lending services, representing buyers, sellers, borrowers, banks, mortgage companies, investors, builders and developers in all of their real estate and mortgage transactions. Stiles Law serves all areas of eastern Massachusetts–the North Shore, Boston, and Cape Cod, in addition to the entire South Shore, including: Plymouth, Kingston, Duxbury, Hanover, Pembroke, Marshfield, Scituate, Norwell, Cohasset, Hull, Hingham, Weymouth, Braintree, and Quincy.

Copyright © 2014 Stiles Law, All rights reserved. Stiles Law is a Massachusetts licensed law firm and all content is based on Massachusetts law. The information presented above is meant to be used for general informational purposes and it should not be construed as legal advice or legal opinion on any specific facts. No child labor laws were breached during the creation of this Blog, further Bob Bonkley was compensated for his likenesses and appearances in the same.