When you book a hotel reservation the representative will ask for single, double, or multiple occupancy and charge accordingly. It's the same idea when you rent out your property to prospective tenants. Those who plan to rent your property are written in the lease predominantly for legal purposes. Those who plan to stay in your property who are not on the lease are considered guests.
Sometimes your tenants will abuse the lease by having multiple guests stay for long durations of time. Of course having the girlfriend stay over for a couple nights a week or the parents visit for a couple weeks at a time is fine. However, where does one draw the line? Although restricting guests and their duration of stay is almost impossible to enforce, there has to be some language and understanding in the lease to prevent a rental from turning into a boarding house.
During my latest tenant search, I almost accepted two guys who would have fully taken advantage of the lease by having two to four guests all throughout the year. Here's how things played out.
PREVENTING GUESTS FROM OVERSTAYING THEIR WELCOME
My main rental is a two bedroom, two bathroom condo with parking in a nice part of town. I decided to raise the asking price by 12% to take advantage of current tightness in the market. The realistic range I could charge was between $3,500 to $3,800 based on my market research and I decided to shoot for the top.
Demand was strong at $3,800 but several prospects who showed tremendous interest flaked out in the end. Then a software engineer who just relocated to Google's San Francisco campus from Mountain View paid me a visit. He was a nice guy who made a low six figure income. His roommate would be arriving later next month from Bangalore, India for an internal job transfer at Google on an L1 visa.
Before I Skyped with the prospective tenant from Bangalore, his roommate was so eager to secure my place that he offered to come by my house that evening and leave the $6,000 rental deposit with me. I agreed and told him I would not cash his deposit until the interview was complete and we all signed the lease. During the tail end of his visit, he mentioned that his father would be paying him a visit next month for a couple weeks. Not a problem.
Then I politely asked what about his mother, afraid that he might say they were divorced or worse, deceased. He responded, “My mother is coming too, and will stay with me for one month. Is that OK?”
I was surprised by the duration of her stay and asked him, “Where would she stay?” given he would have a roommate.
He politely responded, “In my room, with me.”
I realize it's common for 20-something year olds to co-habitate with their parents until they build up their financial reserves, but I have never heard of living in the same room with your mother for a month if you are making a six figure income. Why not just put your parents up in an inexpensive motel? Besides, my apartment isn't big enough for four adults.
My prospective tenant is either a big time mama's boy, which may be good because when mama is home there won't be raging parties that will disturb the neighbors. Or, my prospective tenant might be uncertain about his financial situation or is super frugal. He asked me if I could put in a clause that said I would not raise the rent for two years for example. If you're constantly going to have your parents stay over, at least get your own place or a place with one extra bedroom. Don't parents deserve better?
As a grown adult I'm not sure if I could voluntarily live in the same room with either parent for one week, let alone a month. Could you? I chalked the situation up to cultural differences. My tenant then mentioned that he'd probably have his five brothers and sisters visit as well from India. One big happy family.
My Skype with the roommate transferring from Bangalore went OK. He was much more aggressive and abrasive as a 25 year old. When landlords think of two fellas in their mid-20s as tenants, we can't help but think of party animals who disturb the peace. Fortunately, these prospective tenants did not seem the party type as both went to IIT Delhi, the best university in India with less than a 2% acceptance rate.
At the end of the Skype session, the prospective tenant also mentioned that his parents and siblings would be visiting from India as they've never seen America. His L1 Visa expires after three years and he wants to maximize his stay as he should. Understandable, but where would they stay and for how long I asked?
“With me, in my room of course!” he retorted in a very annoyed tone as if he owned my place.
If there's one thing I really dislike, it's cocky recent college graduates who thinks the world owes them something without paying their dues. I'm very big into respect for your elders, and this kid showed none.
Now I'm doing the math. Rent to two guys who have an immediate family totaling around 15 people who all want to come visit for who knows how long. My fellow owners are going to go nuts.
ADD A GUEST CLAUSE IN THE LEASE
I've never had a tenant in the past 10 years who invited family to stay with them for more than two weeks at a time let alone a month for multiple times a year. Furthermore, I've never had a tenant who were not “one unit” – either a couple or a single individual. As a result, I never had any sort of guest clause because I naively assumed everybody wants to live by themselves.
The prospective tenants were nice enough to at least tell me their parents planned to visit for a while each this year. Some tenants simply roll in extra beds for guests who are not on the lease and squat for months or even years. Once you have a tenant that you want out for whatever lease violation, it is very difficult to evict. The process takes at least six months to move to court proceedings after a notice of eviction is served. In those six months, the tenant can very easily stop paying the rent.
Given I didn't want potentially six people living in my unit at a time throughout the entire lease, I added an important guest clause which stated that tenants are allowed guests for up to 30 days a year. The days can be used consecutively or distributed throughout the year. I decided on 30 days because that was the duration the first tenant said his mother would stay. Hence, I was trying to be accommodative to his wishes.
The rule is not strictly enforceable by me, nor by San Francisco ordinance, but at least I have some line in the sand I can point to and we can agree upon.
It turns out that both tenants balked at any sort of guest clause. They could not understand why their parents, brothers, and sisters coming to visit for months at a time would not be ideal. Even after giving them the single/double occupancy hotel room booking example and explaining liability risk as my biggest concern, they still didn't get it. I wrote:
Hi Guys, I'm sure all your family members are great, but please understand I have landlord insurance I pay every month for liability reasons. Here are some examples of things that may occur which are out of our hands.
* Mom stays for two months and hurts herself walking down the steps. Mom decides to sue me or the association because of some crack on the steps we are not aware of.
* Dad accidentally leaves the stove on and burns down the kitchen while you guys are away at work. Your rental insurance policy should pay, but who knows? I'm sure I will have to get my insurance involved and the process will be one long nightmare.
* Brother has some altercation with other owners due to excessive noise. They file a complaint and penalize me for him not being on the lease. What an embarrassment and hassle for me during the next HOA meeting.
* Your mom leaves the condo door or garage door open and there is a robbery of someone else's unit. Although you say you are responsible, the HOA will go after me, and I will then have to make sure you cover the damages.
Hopefully these examples highlight my reservations for multiple long term guests.
Thankfully, the tenants rejected the lease as they refused to have any guest restriction clauses in the lease. The tenant already in SF later admitted to me that he wanted his mother to stay for 6 months at a time, and not just one month. Every single landlord I spoke to has a guest restriction clause with durations ranging from two nights a week to five weeks a year total. Although I've now got to look for more tenants, I feel better knowing that my apartment won't be turning into a boarding house for a couple dozen people throughout the year.
THE INTERVIEW IS KEY
Every city has different rental rules to be aware of. San Francisco is known for being very pro tenant given the limited supply and relatively high rents. I've heard of many nightmare scenarios where tenants demand X amount of money to move, or who simply squatted without paying rent for months because of some conflict.
Ideally, you want a tenant who takes care of your place, pays on time every month, treats their neighbors with respect, and leaves you alone. In order to find the ideal tenant you've got to carefully look over their financials, ask about their work, understand their current living situation, and figure out what makes them tick.
The interview is vital to getting to know them better. Sometimes, there are simply cultural differences which cannot be overcome. Other times, there might be stability issues between the couple or job risks if a prospective tenant works at a company you know is going under.
It is always better to be safe than sorry. Understand your cities' rental laws, include points in the lease which concern you, and carefully screen tenants who you think will be the best tenants for your place. You'll be able to lower turnover and increase your happiness in the process.
TO REVIEW: HOW TO MINIMIZE TENANT LEASE ABUSE
1) Stick with the 40X monthly rent as annual income or greater rule to reduce the chance of having tenants wanting to sublet, AirBnB, or secretively find additional tenants not on the least to share rent expenses. We've probably all secretly piled into hotel rooms before to save on costs. As a landlord, you have liability risk that could cause big time damage to your finances. Get as many long term guests to sign your lease as possible.
2) Get landlord insurance as well as an umbrella policy to protect your assets. Here's how an umbrella policy works. This article discusses how much property insurance you should get. Paying the full rent on time becomes a secondary matter if you have assets to protect. The number one thing you should be concerned with is liability because uncontrollable bad things happen all the time.
3) Spend time interviewing your tenant over e-mail, telephone, Skype, and face-to-face. Observe their promptness of response and their courteousness. By asking basic questions about their employment, their desired length of stay, and interests, you should be able to get a good idea of whether they will respect your lease or abuse it like a broken soda machine.
4) Add a guest clause if you have concerns. Make sure you go over every single point of the lease together so there is no ambiguity. It's all about setting expectations early on. Only when my prospective tenant was giving me the deposit check did he ask about his mother staying for a month. And only after I put in the 30 day guest clause to allow for his mother to stay for a month did he admit that his mother was planning on staying for 6 months. At the end of the day, it is your apartment and you and the HOA decide the rules. If a non-negotiable rule such as quiet time after 10pm ruffles their feathers, then move on. Any tenant who shows annoyance or questions basic rules will probably want to bend them.
5) Get the rental deposit of 1.5 months worth of rent or more and explain its use. With a hefty deposit, a tenant should be more likely to comply with the rules, cause less trouble and damage, and clean up the place upon exit.
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