Minnesota Investment Property
Earlier in June, we blogged about investors who purchase single family homes used as rental properties. In this blog entry, I wanted to comment on who actually rents these homes. Many prospective investors often ask our team this question.I have grouped the tenants into the following categories:
1. Groups of three to four friends - You will definitely have some of these groups who come to you as a landlord. They want to live together and save themselves some money in rent. Why rent a 1 bedroom apartment at $600 a month when they could live with three of their friends and pay $400 a month? A number of clients of agents on our team have rental homes rented to groups of friends right now. For the most part, they have been excellent tenants. With four different income sources, the landlord in no way has to worry about collecting the rent. Realize of course that a group of four college aged students are going to be "tougher" on the house. However, collecting rent is almost never an issue.
2. Section 8 tenants - Some of your prospective tenants may be Section 8. I personally do have Section 8 tenants and they generally are very good. Basically, what section 8 means is that the government is paying a portion of their rent. They have to get "approved" by Section 8 to get Section 8 voucher. This voucher will give them a credit towards renting your house. For example, if a section 8 tenant applied for one of my homes, I would still do the normal background check and check their rental history. And if everything "pans out," I would ask them if they have some money to "hold" the house. Once I get the deposit money from them, I'll meet up with them to sign their section 8 paperwork. If they are approved, they should have the paperwork that you need to fill out as the landlord. After you fill it out, the tenant will turn it in to their case worker. Once HRA (Housing and Redevelopment Authority, aka "Section 8") receives the paperwork, they will set up a time to inspect the home. After the home passes inspection, you will begin receiving monthly checks from HRA on the first on the month. Again, it will NOT be the full amount of your rent. It will be a portion of it. The HRA worker figures out how much they are going to pay based on the income of your prospective tenant.
3. People who just moved to the Twin Cities - You will find a good number of job transferees that are looking for rental homes. A friend of mine just rented their home out in Lakeville to a couple moving from Ohio. They are going to be in Minneapolis for three years and did not want to purchase a home. They signed a three year lease with him. You will find a large number of people who are moving to the area and do not want to purchase. They want a nice home to rent for a year or two, maybe even longer.
4. Foreclosure/Bankruptcy Victims - There is a large number of very good tenants (that have had financial problems) that are looking to rent nice single family homes. Perhaps they made some bad decisions in their past in regards to their personal finances, or they had a medical illness that prevented them from working. As we all obviously know, we need a roof over our heads and a place to live. What I have found, is that even if people have horrible "money trouble," have filed bankruptcy, etc., as long as you check out their rental history, you will be safe. Think of it this way. If there is only so much money each month, the first thing that DOES get taken care of is the rent. Other things like the cable bill, cell phone bill, etc. may not get paid on time. Right now, a client of mine has three different tenants that have filed for bankruptcy in their past. And according to this client, all three of these tenants are excellent, have stable jobs, and pay their rent on time.
As investors or prospective investors, realize that rental demand is extremely high right now in the Twin Cities real estate market. Not only for apartments of course, but single family homes as well.
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