Hot rental markets are spreading all over the country. With the stock market and real estate market both on fire, the rental market is also heating up.

More people are allowed to relocate to lower cost areas of the country thanks to the permanent trend of working from home. Meanwhile, the strong real estate market is pricing people out of buying.

Hot Rental Market In San Francisco

Due to the pandemic, there’s been a fanning out of residents in my city of San Francisco. Residents are moving from the more dense east side of the city to the less dense and more affordable west side of the city. As a result, the demand has been strong for my rental houses.

I listed my property on Craigslist and in two days, I received 36 serious inquiries. The address was left off because I wanted to weed out the looky-loos and those who don’t read and follow instructions. I also didn’t want any psycho-killers. As a result of the demand, I decided to have an additional open house on Saturday, instead of just Sunday.

Surprisingly, 10 out of 10 interested parties who said they’d come Saturday came. The world is full of flakers, and I was expecting at least 30% of them to not show up.  Maybe penguins can fly.

Some people are still scared of buying and some are probably unable to qualify for loans given stricter lending standards. I worry about the sustainability of this rental market, but for now, landlords should be taking advantage by raising prices.

For those renters out there who keep missing out, here are some thoughts from a landlord’s perspective of what worked, and what raised red flags during the open house.

Are you a landlord looking to maximize rental income and minimize turnover? You’ve come to the right place because I’ve been a San Francisco landlord since 2005.

Since 2005, I’ve built a rental property portfolio that generates about $100,000 a year in rental income. Over time, I’ve learned different pricing strategies to help maximize returns and keep things simple.

If you want to build wealth, I think buying rental properties post-pandemic is the way to go. Benefit from rising rents and rising real estate prices post-pandemic.

In a hot rental market, with ever-rising rents, it can be stressful trying to find a place that meets your criteria and a landlord that’s willing to rent to you. Being prepared is crucial. In this post, I’ll go over all the application documents needed when renting an apartment or house.

I was inspired to write this post because after two years, my beloved tenant is leaving me for another man. My tenant is a single woman in her 50s who sold her house on the east coast to start a new life in San Francisco. She’s always wondered what the west coast fuss was all about so she decided to see for herself. After a year of work, she met someone and is now moving in with him.

I’m so sad to see my tenant go as she’s been wonderful. Yet, I’m so happy she’s found new love! I don’t know what it is about my rental property. But, every single tenant ends up marrying or finding someone special. Good feng shui perhaps!

As I wrote in my real estate vs. stocks post, real estate takes more effort to manage. I’ve got to now host multiple open houses and carefully vette my future tenants like the CIA to ensure the least amount of headache down the road.

Thank goodness everything is so easy to do on Craigslist nowadays. I’ve got all the application forms and after almost 10 years of being a landlord, I know exactly what to look for.

If you are an aspiring landlord or a new renter in a hot market, this post should help provide some prospective to getting what you want.

Application Documents Needed When Renting

When you go to an open house, if you have all your documents in order, you can apply on the spot. This puts you a step ahead of the competition. And coming prepared with your documents needed when renting is sure to impress.

* Income and Paystubs: The general rule of thumb for a landlord is for renters to make at least 40X the monthly rent as annual income. In other words, if the rent is $2,000 a month, the minimum the tenant should make is $80,000 a year.

Prospective tenants should bring in their latest two paystubs and prior year’s W2 if you feel comfortable. If you operate a business, then please highlight your income statement.

* Duration of Employment: The longer you are at one firm the better. If there’s a history of moving around every year, the landlord will put you in the bottom pile because the last thing a landlord wants is to have to go through the entire tenant screening process again so soon.

Seeing a letter from your Human Resources department verifying your employment and duration puts your landlord at ease. Landlords want a tenant who will ideally stay for two years or longer.

More Documents Needed When Renting

* Assets: It is preferred to have six months of rent in liquid savings or semi-liquid investments or more. A landlord’s fear is that a tenant loses his or her job, runs out of money in several months, stops paying rent, turns into the psychopath from the movie Pacific Heights, and destroys all your property!

Bring a copy of a bank statement and brokerage accounts that show liquid assets. You don’t have to show everything. Just enough where the assets cover at least 6 months worth of rent.

If you have tons of assets, feel free to show up to 36 months worth of rent but not much more. Having too much money makes your landlord think you’re only here for a pitstop until you find something better.

* Letters of Reference: Almost every single landlord will experience some type of problem tenant if they landlord long enough. Letters of reference are important to verify a tenant is worthy. Please also provide the telephone number(s) of previous landlords so we can speak to them about their experiences with you.

Many times, letters/emails don’t mean anything because the landlord is just being nice so that you can hurry up and get out of their place! As a result, please also provide work references or outside activity references as well.

* Credit Report and Credit Score: The first thing landlords check is your credit score. The credit score is always used for screening purposes if there are many applicants. Even if there are only a couple applicants, a credit score is still used to gauge the tenant’s ability to pay the rent on time.

It doesn’t matter how much you make or how much is in the bank if you aren’t a responsible payer. You need an actual score along with your credit report. Otherwise, your landlord will suspect something is wrong.

More Criteria Needed To Rent An Apartment

* Emphasis On Duration: It should be deduced from your rental and employment history whether you are a short-termer or a long-termer. However, if you really want to increase your chances of snagging that apartment, write an explicit e-mail or letter stating your intentions of staying for the medium-to-long term.

The sweet spot is around 3-5 years. Any longer and the landlord might start wondering whether they’ll be able to keep up with market rents. Or they might wonder if they can get their units back in case something doesn’t work out, or if they want to move back in.

* General Feel: One can do all the screening they want. At the end of the day, choosing the right tenant is a leap of faith. It’s the same for hiring someone for a job or admitting them to a school. You never know how the person will turn out until after they settle in.

Tenants should consider bringing a friend as a good sounding board for the property they are considering. Landlords should also bring a friend to meet with prospective tenants as well. We are often blinded by our unconscious biases about people that it is always good to have a different perspective.

For example, men go stupid over beautiful women. If you are one of those men, then bring a female friend who will think straighter during evaluation time.

Are You The Ideal Tenant?

The ideal tenant is someone who knows what he wants, has her financial ducks in order, and has a track record for stability and responsibility. Not only that, an ideal tenant comes prepared with all the documents needed when renting. Tenants should also try and get a feel for the landlord’s character.

Is he super anal to the point where he is always checking up on you over e-mail or ringing your doorbell? Does he have a list of handymen for you to contact in case something goes wrong? Can you tell your landlord really cares about the property based on the upgrades? It’s as much a leap of faith for the tenant, but with much less financial fallout.

If both parties can be as upfront as possible about their requirements, I’m optimistic in a harmonious relationship between the landlord and the tenant.

Further Reading

Now that you know all the documents needed when renting, here are some additional articles to enjoy.

• Save On Capital Gains Tax By Moving Back Into A Rental
• How To Decide Whether To Buy Or Rent A Home

For more resources check out my:

• Top financial products page to find the best products for your finances
• Invest in real estate page to invest in my favorite asset class,
• Free wealth management page to manage your money better. 

Financial Samurai has been online since 2009 and is one of the most trusted and largest independently-run personal finances today.

Invest In Real Estate More Strategically

If you don’t have the downpayment to buy a property, don’t want to deal with the hassle of managing real estate, or don’t want to tie up your liquidity in physical real estate, take a look at Fundrise, one of the largest real estate crowdsourcing companies today.

Real estate is a key component of a diversified portfolio. Real estate crowdsourcing allows you to be more flexible in your real estate investments by investing beyond just where you live for the best returns possible. For example, cap rates are around 3% in San Francisco and New York City, but over 10% in the Midwest if you’re looking for strictly investing income returns.

Sign up and take a look at all the residential and commercial investment opportunities around the country Fundrise has to offer. It’s free to look.

Manage Your Finances In One Place

One of the best way to become financially independent and protect yourself is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize your money.

Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances on an Excel spreadsheet.

Now, I can just log into Personal Capital to see how all my accounts are doing, including my net worth. I can also see how much I’m spending and saving every month through their cash flow tool.

Documents Needed When Renting An Apartment Or House is a Financial Samurai original post.

Zillow is broken or simply can’t be trusted to provide accurate online estimates for properties. Please don’t trust Zillow to be accurate. Instead, use Zillow as a reference point and invite real estate agents to give you a better price assessment.

In January 2014 I wrote a post entitled, “Exploit Online Data To Lower Your Property Taxes“. In the post I highlighted a chart of my house’s estimate value by Zillow. The chart looks like a internet stock from 1999-2000.

The chart significantly impedes my efforts to lower my property taxes this year because property assessors use online sources such as Zillow to partly make their assessments.

Since the publication of the post, the chart has continued to go up every day (see below). We’re now close to 300 days in a row of price increases according to Zillow. Are you looking at a new billionaire in the making who only hangs out with super models? Or is Zillow completely wrong?

Zillow Is Broken

There is no way my home price could be up 60% since May 2013. Furthermore, there is no way prices can rise every day in a straight line for 10 months in a row. Just looking at the gap between the bold blue line and the dotted line (average price of my area) shows things are out of whack.

Thank goodness San Francisco is limited to raising property taxes by around 3%. But for someone like me who was able to successfully lower my property valuation for years, I will now be reset back to the original assessed value +3% a year catchup if I fail this year.

Zillow is either broken, or San Francisco is in a massive housing bubble. Thanks to the robust growth of tech companies here in the Bay Area (e.g. Facebook at record highs, AirBNB and DropBox going public next, etc), I don’t think San Francisco is in a housing bubble. I don’t even have to mention rent control, land restrictions, good weather, and an international city as other reasons for propping up demand. We’re probably in the sixth inning of a dramatically tight ball game. 

Earning rental profits or rental income is the key to having a valuable rental property. A lot of people are buying rental properties now for income since rates are so low post-pandemic.

The value of cash flow has gone way up because it takes more capital to generate the same amount of risk-adjusted income. If you want to build wealth, I would focus on buying rental properties with some of your net worth.

Real estate is becoming intrinsically more valuable as more people spend more time at home.

One of the key income streams to obtain for financial independence is rental income. Not only will rent increase over time in good locations, your asset value will also increase as well. One day the mortgage will be gone and you’ll have this wonderful asset producing a stable income to take care of you and your family. But before you get to glory, a lot of hard work and soul-searching must be committed along the way.

Objections To Earning Rental Profits

The other day I received a lovely comment on my post, “How To Raise The Rent, Extend A Lease, And Get Rich As A Landlord“. We all know by now that landlords are greedy and evil people, especially those of us who own property in San Francisco. So this comment below simply reinforces the notion that you should never let your son or daughter marry a property owner.

YOU SHOULD ALL BE ASHAMED OF YOURSELVES!!!!! Conniving to use your power over your tenants to manipulate them into a situation that forces them to choose between the stress and hassle of uprooting their lives, and coughing up some amount you designate oh so carefully and gently deliver to line your own pockets.

I know you own it and you deserve to make a profit. BUT COME ON….The mortgage DECREASED by 23% but you still jack up the rent? You expect us to think that maintenance costs jumped up THAT MUCH that a 23% decrease in your mortgage doesn’t offset it???? That’s just a lie you tell yourself to ease your conscience. And the despicable lies you tell them to make them feel like they’re getting a deal and that you “probably” won’t increase it next time when you’re publishing articles on how to beguile them so you can do just that??? Wow.

It’s your property and it’s a business, granted, but you are absolutely heartless for sticking it to those who make their home in your “business”. Renters already have NO RIGHTS in this city so thanks a lot for publishing the tools for those in power to continue to stick it to us. I honestly don’t know how you sleep at night…oh wait….on the Egyptian cotton sheets the brand new parents who are probably doing their best to save for their kids college funds are buying you. Sweet Dreams Samurai.

That’s it! I’m giving away all my property now. Who wants some? The commenter makes some good points. However, if you know how to negotiate well by understanding one’s Best Alternative To A Negotiated Agreement (BATNA), you can increase your returns – and that goes for both sides. Besides arguing why landlords have the right to maximize profits, I’ll also share with renters how they can keep rents down in this post. Call me an equal opportunity advisor.

The only beef I have with this commenter is that she missed one thing: I only sleep on the finest Moroccan cotton sheets after I bathe myself in Evian water. Where’s my baby giraffe? Come on now!

If you want to get rich, own real estate. Never rent again because the return on rent is negative 100% every month.

Here’s a story why you should never rent if you want to get wealth. Frankly, I’m shocked the guy still has a following given his financial history. It just goes to show that anything can happen in America.

Do you want the best tenants from heaven? As a landlord since 2005, I will show you how to get the best tenants from heaven so you can have the best landlord experience possible.

The more choices you have, the more stress you will have ironically. Blessed is thee with just one option, for there will never be a doubt in choosing wrongly!

Finding The Best Tenants From Heaven

Over 50 groups of interested parties showed up to my rental over two weekends with 20 submitting applications of interest.  I’ve narrowed the candidates down to five, which is four too many.  

There might not be a right choice, just a suboptimal choice because all the candidates have credit scores over 700, make 80X the monthly rent a year in income, have over 10X the liquid savings, and seem like reasonably nice people.

As a personal finance blogger, I think it’s absolutely fascinating to understand what type of people spend ~$3,500/month for an apartment in San Francisco. 

I told myself 10 years ago that if I had to spend more than $2,000/month in rent, I would buy. Inflation is a powerful, powerful, thing because back then, the apartment rented for $2,200. Real estate is simply one of the best ways to build wealth over the long term.

Perhaps you can help me choose as I think about the relative pros and cons of each.

The Top Candidates

My ideal tenant is one that pays on time, is respectful of the neighbors, quiet, self-sufficient, and stays for at least two years or longer. These are the true tenants from heaven. 

Help me choose the potential best tenants from heaven.

1) Doctor

35 year old cardiologist who finished his residency a year ago and is now making $300,000 a year.  The hospital where he works is just 8 blocks away.  He has about $50,000 in savings, $130,000 in medical school debt, and a 710 credit score.  

A big positive is that he is very focused on cleanliness, given he has to scrub up at the hospital multiple times a day.  He also plans to live by himself, which reduces wear and tear.  

My worry is that he may be too anal and ask me to fix every little thing if it’s not perfect.  Also, a 710 credit score, although good, is at the bottom thanks to a forgotten 12 month old missed payment that is supposedly coming off his record this year.

Update: Doctor is out. Doctor brought over his 3 other more senior doctor friends and I believe they talked him out of it by filling his mind with luxuries and riches.  My suspicion on his meticulousness came true. 

2) Loving Bliss Cat Lady

A newly wed 33 year old couple with two cats relocating from New York City.  She graduated from a Top 10 business school and works as an executive recruiter.  I’m not sure this is exactly the job she wanted after spending so much time and money going to b-school.  

The husband graduated from the same Top 10 business school 4 years ago and is in the money management industry.  They have no student or car debt and make about $150,000 each. I cannot get an employer reference from the husband because his current employer doesn’t know he is looking for a new job in SF, even though the  employer is moving him out to SF to work for them!  

My other concern is that the wife is currently living at her family’s house in Berkeley until her husband comes to SF.  Their application is great, and they are very nice folks who I can see living here for 4 years.

3) Big Law Lawyer

Two, male, 27 year first year big law associates who each make $160,000 base salary + potential bonus.  They went to a top 10 law school in California. The one guy was very enthusiastic and loved the place and offered to pay 3 months up front plus the security deposit. They each have about $30,000 in savings and credit scores of 780 and 805.  

The problem is, I haven’t met his roommate, who is currently out of state and won’t be back until end of the month and I need to make a decision soon. They are supposedly best friends, and the roommate is onboard with whatever his roommate says. The person who visited said they will likely work 70-80 hours a week as first year associates and really want a quiet place when they come home to unwind and sleep.

4) Big Law 2 

Two, male, 27 year old first year big law associates who also make $160,000 base salary + potential bonus each.  They both went to a top 5 law school.  Met both, and they seem like  fine, outstanding citizens.  

Credit scores are 770 and 790 and they too want peace and quiet because they will be working long hours. Combined savings is around $100,000.  The only problem is that I can’t get keg parties out of my head when I think of two male roommates.  

They will likely each have girlfriends who will revolve through the apartment.  One will probably end up staying there every weekend, therefore the wear and tear and liability goes up.

5) Next Online Dream

Two, male, 33 year old MBA grads who make about $130,000 base salary + bonus each.  They are European but have their green cards. Credit scores are in the 780s and they have about $230,000 in savings combined. The problem is, one of the roommates brought his girlfriend, and he admitted she will be staying with them for weeks at a time. They are willing to pay 3 months rent up front + security deposit.  Very enthusiastic guys who are both at start-ups.

6) Googler

I always thought that software engineers capped out around $250,000. Boy was I wrong. A 28 year old, 2005 grad from CalTech who works for Google put down he makes $450,000 a year and has $400,000 in savings. I am thoroughly impressed with his financials.

He relocated from New York City and plans to live alone, although he visited with his girlfriend who also works at Google and has her own place. He did not put down his credit score which is weird.

I’m also concerned that after a year he will move out and buy a place with his girlfriend/fiance. Hopefully she actually just moves in with him and they live together for two yeara after his first year or so.

Note: I realized after typing these five out that I didn’t highlight a two female or single female combination. There were definitely female applicants, but their applications were much weaker for some reason.  A couple females lived at home with their parents for one year, which makes me nervous because that doesn’t make them self-sufficient.  

One female just graduated college a year ago and makes $35,000 a year but wrote down she has $300,000 in savings. Bank of Mom & Dad? Her roommate graduated four years ago and makes $105,000 a year + bonus and also has $300,000 in savings. Wow.  

Another female makes about $120,000 and has a great application but didn’t follow up and said she needs a roommate.  That’s a problem because I need to meet the roommate from the beginning and don’t want to have to go through this process again.  There were no female MBAs, lawyers, or entrepreneurs interestingly enough.

Which Tenant Would You Choose?

The other 15 applicants have profiles very similar to the five above.  The only really unique person is the cardiologist who seems solid, but has a lot of debt, seems quite anal, and has a below average credit score.  

After a year of living there, he could decide that with his now $400,000+/year income, he’d like an even nicer place and split. Ideally, he would be too busy working for the next two years to notice. Maybe he’ll find a woman in year three, get married, and live together in the place for another two years.  Who knows!

I really am afraid of my tenants throwing raging late night parties and obnoxiously loud NFL football parties because that’s what guys do. That’s what I did when I was younger. Two guys just seem to be messier than a couple and the cardiologist. I really don’t want to piss off my fellow homeowners, who make up the majority of tenants in the building.

After checking all the boxes, choosing a tenant is a big leap of faith.  I’m just hoping I’ll get a good one who will take care of the place as if it were their own.  Help me select the best tenants from heaven!

Wealth Building Recommendations

Explore real estate crowdsourcing opportunities. Tenants from heaven are rare. But they can be found with enough dues diligence. If you don’t have the downpayment to buy a property, don’t want to deal with the hassle of managing real estate, or don’t want to tie up your liquidity in physical real estate, take a look at Fundrise, one of the largest real estate crowdsourcing companies today.

Real estate is a key component of a diversified portfolio. Real estate crowdsourcing allows you to be more flexible in your real estate investments by investing beyond just where you live for the best returns possible.

For example, cap rates are around 3% in San Francisco and New York City, but over 10% in the Midwest if you’re looking for strictly investing income returns. Sign up and take a look at all the residential and commercial investment opportunities around the country Fundrise has to offer. It’s free to look.

Shop around for a mortgage. Check the latest mortgage rates online through Credible. They’ve got one of the largest networks of lenders that compete for your business. Your goal should be to get as many written offers as possible and then use the offers as leverage to get the lowest interest rate possible from them or your existing bank. When banks compete, you win. Mortgage rates are at all-time lows post pandemic!

Updated for 2021 and beyond. Never settle for a terrible tenant. Always keep searching for tenants from heaven.

Remember the $1.69 million three bedroom, two bathroom condo I used as an example in “How To Correctly Value And Analyze Property“? I forecast it would go for $1.85 million. 2553 Greenwich has a fantastic view of the Bay, but it doesn’t have a dedicated entrance, and it’s on three floors after walking up a flight of stairs.

I figured the property could easily reach $1,000/sqft in several years, or $2 million due to the view and upward trajectory of the SF real estate market. It turns out my estimate of $1.85 million was just wishful thinking of what I’d like to pay. A friend’s friend bid $2 million for the place cash and LOST! Just think about that for a minute. Someone was willing to pony up $300,000 above asking and still got a big fat rejection!

The only people who have $2 million cash liquid are those with net worths of at least $5 million if not much, much more. Of course someone with “only” a $2-3 million net worth fully invested in the stock market could just liquidate instead, but that’s highly unlikely. The multi-millionaires I know coincidentally follow two main Financial Samurai rules: 1) They don’t spend more than 1/10th of their gross income on cars, and 2) No one asset class makes up more than 50% of their net worth. They are highly diversified.

The Hot Real Estate Market