Congratulations on making the leap towards owning an investment property in Stockton! Real estate investments in San Joaquin County are often seen as one of the most reliable (and profitable) investment opportunities due to the tax benefits and income potential.

However, a reliable and profitable investment will only become safe and lucrative if managed properly.  A new landlord needs to take the necessary steps to set themselves up for success.

Finding the perfect property at the right price and paying for the property, whether with a loan or out of pocket, is only part of the real estate investment game. Managing a rental property successfully is the other equally important aspect.

Here’s a look at the most important areas a new landlord must understand in order to have the most successful property. To learn more about  what to look for when purchasing an investment property  check out this article.

Know the Property Laws in California and in Stockton

Every rental property is governed by specific set of landlord-tenant laws established by state law.  Additionally, depending on where your property is located you may need to adhere to local city and county laws that will impact your rental property.  For example, the City of Stockton has a “rental property inspection ordinance.”

Landlord-tenant laws are state driven rules that will protect the owner, the property and the tenants in all rental transactions. 

Landlord-Tenant Laws include items like:

• How much you’re allowed to charge for a security deposit
• The amount of days you are required to give tenants before raising the rent price
• Whether you are allowed to charge a non-refundable pet deposit
• Who is responsible for snow-removal: landlord or tenant
• Whether a tenant is allowed to withhold rent due to a cockroach infestation

If you have yet to check out the landlord-tenant laws in California, you’ll find that there is a rule for almost every scenario that could arise between a landlord and renter interaction. Landlord-tenant laws provide the guidelines for how you will create a lease agreement.

Failing to follow landlord-tenant laws in any part of the state can result in a lawsuit and lost income.  For example, if you are evicting a renter  for non-payment of rent, but forgot to follow one of your state’s landlord-tenant laws the judge could end up siding with the tenant and you could owe him money!

Every new landlord should find an attorney who is familiar with landlord-tenant laws where your property is located. Arrange a meeting to go over any questions about owning a rental property, and have them review your lease agreement and any legal forms you will use in your rental business.

Screen Your Potential Stockton Tenants

Once you have a good understanding of your rights and responsibilities as a rental housing provider, let’s take a look at the next most important task required of a successful rental investment – tenant screening!  Have your criteria & qualifications available for prospective applicants IN ADVANCE for their review when they inquire about your property.

Your investment will only be profitable if you find tenants who pay rent on time, following lease terms and maintaining the property according to the lease (ie do not cause any damage!).

New landlords will be most successful at finding good tenants by following tenant screening best practices.  Landlords are advised to look at a rental applicant’s credit report, criminal report and eviction history to determine if they will be a good renter.

Benefits of a Tenant Screening Report:

• Credit report reveals a renter’s financial responsibility, bill paying habits and debt-to-income ratio.
• Criminal report will show you if a renter has a dangerous criminal background that would put your property, your community, your other tenants, you or your business in danger.
• Eviction reports show you if a renter has had any evictions in his past.

Additionally, a good landlord will ask for past landlord references, job references, pay-stubs, and other supporting documents to prove that the applicant can meet the income requirements and has the qualities of a good renter.

Tenant screening is one area that is governed by federal laws like the Federal Fair Housing Act and the Fair Credit Reporting Act.  Your knowledge of landlord-tenant laws should include a complete understanding of these federal laws.

• Learn more about How to Create Legal Screening Criteria.

Tenant screening is the best way to protect the profitability of your investment property. The more qualified your renter is, the more likely you will have a positive landlord-tenant relationship. One free of evictions, property damage or vacancy – all things that significantly eat away at a landlord’s cash-flow.

Have a Reserve Fund

Keep a reserve fund to pay for property maintenance. This includes all planned and unplanned maintenance for your property, especially emergencies.

Even if property damage is caused by a tenant, and they are technically at fault, you will still have to pay for the out of pocket expenses to return the property to a habitual condition.

Your reserve fund should cover emergency property expenses and can also act as a savings account for big ticket property maintenance like replacing the roof, repainting the exterior or replacing a furnace.

Wells Fargo notes that you should expect to spend 1-2% of your house value on property maintenance each year.

• Learn more about Maintenance Expenses for Your Rental Property

Understanding landlord-tenant laws in California and, more specially, in Stockton, by following tenant screening best practices, and having an adequate reserve fund are just a few of the most important steps every landlord must take in order to set themselves up for a profitable investment.

About the Author:  Norbert Huston is the Broker/Realtor of Huston Assoc. Real Estate specializing in residential property management in Stockton and surrounding communities.  Our office is proud to use the RentecDirect software for our clients & residents, which also provides excellent content on a regular basis.

Huston Property Management