Property Management Fundamentals: Criteria and Pets
Nate Hedrick and David Bright discuss the topic of tenant selection and whether or not to rent to tenants with pets.
Summary
Nate Hedrick and David Bright sit down to discuss a topic that comes up time and time again in the YFP Facebook Group, the YFP REI Facebook Group, in webinars, and from discussions with individual investors, the issue of tenant selection and whether or not to rent to tenants with pets. In this episode, Nate and David tackle the numerous reasons for and against having tenants with pets and ultimately consider how that decision affects you as an investor.
Having tenants with pets brings a unique set of challenges, which will differ and depend on state and local laws. Nate shares his guidelines and tips for tenant selection. Nate reminds the listeners that landlords should follow fair housing laws, follow state-specific laws, establish written criteria for acceptable tenants, and (as a pro-tip) hold open-house style viewings to prospective tenants to limit showing times.
Nate and David go through a laundry list of possibilities to consider as an investment property owner considering tenants with pets. Landlords may want to think about the difference in tenant pool for both pet owners and people who may not be interested in homes with pets. Other things for the landlord to consider are the HOA or condo association rules regarding pets, the difference between long-term and short-term rentals, and features of the property such as fencing, carpeting, shared yard, or positioning of units (up/down units vs. side by side). Lastly, landlords will want to think through the different laws that govern pet rent or pet deposits and follow those closely when allowing tenants with pets.
Mentioned on the Show
- Join the YFP Facebook Group
- Join the YFP Real Estate Investing Facebook Group
- BiggerPockets
- Every Landlord’s Legal Guide by Marcia Stewart, Janet Portment, Attorney, and Ann O’Connell, Attorney
- National Association of Independent Landlords
- National Real Estate Investors Association
- Email the YFP Real Estate Investing Podcast: [email protected]
- YFP Real Estate Investing
- Submit a Question to the YFP Real Estate Investing Podcast
- Apply to Be a Guest of the YFP Real Estate Investing Podcast
Episode Transcript
Nate Hedrick: Hey, David, how’s it going?
David Bright: Hey, good, thanks, man. How are you doing?
Nate Hedrick: I’m great. It’s been a great weekend with the kiddos here, and it’s fully fall. So we’re enjoying it.
David Bright: Yeah, and you were saying you were having a Saturday full of getting your rental prepped as we’ve all been staying tuned to this rental turnover, the roof, all this stuff you’ve got going on in this house, and now it’s about to be tenanted, right?
Nate Hedrick: Yes. Yes, I had a full real estate Saturday. I did some house showings for a buyer client of mine and then immediately kicked over to our rental for one last open house hopefully. We had a bunch of tenants through, bunch more applications, which is great. We actually had an accepted application the week before and then that person decided to buy. So I’m going to be their real estate agent, which is kind of cool.
David Bright: Nice.
Nate Hedrick: But they didn’t rent our house, so I had to go back and reopen it back up. So keeping it interesting, but I’m hoping I’ll get some signed paperwork here tonight.
David Bright: Very nice. Yeah. And I know there’s — we just had a BRRRR house hit the market this last week and saw just crazy demand on our end, but how many applications did you get? Like you know, one of the things we’ve talked about is that I have a property manager that I hire. You are the property manager, so we see kind of different angles of this. And so I didn’t really have any stats on that, I just knew it got tenanted very quickly. What were the stats on yours?
Nate Hedrick: Yeah, I was just looking at that the other day — or earlier this morning. And I think over the course of the roughly two weeks we’ve had it up on the market, we’ve had 22 applications. I think it was like 28 or 29 inquiries on the property, like true, “Hey, I want to apply. Do I qualify?” kind of a thing. And then 22 actual applications. But truthfully, looking at some of those apps, most of them I would say 17 or 18 of them were probably immediate disqualifications, unfortunately, for certain criteria. But again, a lot of activity and a lot of interest, which is great. Makes it rent faster, which is good.
David Bright: No, that’s good. And that’s something I think we should dive into a little bit, how you do that criteria and all that stuff because, you know, again, one of the things we’ve been talking about is that you and I both invest in rental properties, but we both do so a little bit differently, that you are out there, you have become a realtor, you have become a property manager, and so by doing those things, like you get really, really deep detail into how to do those things, which makes it easy for you to hire out a manager later on if you so choose or hire a realtor later on if you so choose.
Nate Hedrick: Yeah, it’s something that I really liked, especially when we bought our first one, we said, ‘Look, we want to do this work. I want to understand it from the inside out.’ I’m the type of person that before I can manage somebody on something, I want to have done it so I can fully put myself in those shoes. It’s probably not necessary, but for me, it’s just part of that process. And so we knew from Day 1 that we wanted to do our own management on the local rentals. And then my first one that I bought up in Michigan like immediately was like, ‘Nope, property manager. I’m not doing that. It’s 5.5 hours away. Forget it.’ So we’ve done both. And I like keeping my hand in the property management a little bit where it makes sense because it keeps me in the loop on what actually goes on with these properties and how these property managers work and the things that they deal with on a regular basis.
David Bright: Yeah, and we had a pretty opposite experience, right? I think I’ve talked before about how I tried to be a property manager for about six minutes, and it didn’t go well. And I was like, ‘Nope, nope, nope. Hiring this out right away.’ And so you know, our strategy was instead just trying to figure out how do we identify people that are good at what they do and how do we manage managers, essentially? And so again, we’ve talked a lot. There’s not a lot that’s right or wrong about either strategy. But one thing that comes up whether you manage yourself or whether you manage other people are just some of these aspects of property management like the criteria that you mentioned where if you manage yourself, you have to set criteria. If you hire a property manager, they’re going to ask you about criteria. So there’s just some aspects of property management that whether you hire it out, whether you do it yourself, you have to know those kind of things.
Nate Hedrick: And I think a lot of people, especially when you get started — and this is actually one of the other reasons that we wanted to not have a property manager was that it costs a lot. Most property managers are 10% of your monthly rental income a month. And it also costs to place a tenant as well, and so people look at that and run the numbers and the numbers look way better when you don’t have a PM in place. And so some people might be looking at this and saying, “Well, I want to dive in and I absolutely want to maximize cash flow, so I’m going to handle the management. We’ll put in that sweat equity so that I can preserve that cash flow.” And so because of that, you know, we get a lot of questions. We see questions come into the YFP Facebook group, definitely check out the YFP REI Facebook group if you’re not already a member. But we’ve done webinars, you and I, David, and we’ve gotten questions in there about the screening process, we’ve had individual investors that we’ve talked with that have reached out or I have investor clients as a realtor that say, “Nate, now that I bought a place and I’m going to have tenants, what do I do?” And if they’re not going to use a PM, you know, there’s a lot that goes into that. And so we thought we would dive into at least some of those questions over the course of a couple of different episodes. I thought, you know — we branched into some of that on an episode a little while back that we were talking more about pets. And so we thought, you know, this is a huge, huge topic, right? We could spend five hours of podcasting time just talking about tenant selection. Well, what if we just broke out one small little chunk and what would that look like? And so we thought we’d focus on what it’s like to include tenants with pets and what that looks like in terms of that selection process.
David Bright: Yeah, because again, that’s a question that you’re going to get whether you hire a property manager or whether you choose to be a property manager. And so this is kind of along that theme of I think folks have noticed that every few episodes, we tend to slow things down and go into greater detail teaching about a topic that’s come up in the Facebook group, on a webinar, or on a podcast because we really enjoy bringing in guests, especially for that inspiration that guests bring. And we definitely prod with questions to try to bring some education in there as well, but oftentimes these topics come up where people say, “Well, we could talk for a whole hour on that.” And so every once in a while, we want to do that. Not for a whole hour, but like let’s talk for a little bit and go into deeper detail on education on some of these topics that kind of get glossed over here and there. And so today, let’s talk about some of that landlord tenant law and screening process and screening criteria and those kind of fundamentals of property management.
Nate Hedrick: Yeah, and I’ll start by putting my real estate agent hat on just for a second because just like pharmacy law is national but also state-specific, landlord tenant law is the same thing. And it’s just as important to follow that, right? So you can’t legally offer a property for rent without following those laws: fair housing laws, state-specific laws, municipality laws, HOA criteria. There are a number of things that go with that, so take everything we say and everything we talk about with a bit of a disclaimer that this may not be specific to your situation, and you really want to do your own due diligence. These laws can change over time, they can be, again, varied by literally the city that you live in. So make sure you’re following your local laws appropriately because this is where it can get very, very tricky.
David Bright: Yeah. But if nothing else, hopefully this helps you to be at least conversational and to know the kind of questions you should be asking a property manager or know the kind of things to start looking into or at least have that kind of starting point for those self-management issues or those hiring a property manager issues. So with that, Nate, putting on your realtor hat, can you start off with what does tenant screening mean? What are kind of the rules of that landlord tenant law and those considerations that someone has to follow when they’re identifying tenants?
Nate Hedrick: Yeah. Without getting too into the weeds on anything, right — because I think we could do whole separate shows on each one of these — but kind of the general guidelines, start by following fair housing guidelines. Fair housing guidelines are pretty universal. You have to be very, very diligent about following those. So make sure you know what fair housing guidelines are and that you are following them to the letter. That means that there are certain protected classes. You can’t say certain things. You can’t make decisions based on certain criteria of an individual. Those are all really, really important to follow. And you know, whether you say it an email or you post it on a listing on Zillow, you can get in a lot of trouble for not following fair housing guidelines. And again, if you’re a pharmacist out there with a different license and you get dinged by something like that, that can actually affect you in other ways too. So this is not just specific to you renting out a house. You need to take these things really, really seriously. And then again, there’s state-specific laws. And we can talk in great detail about the difference between what Ohio allows you to do for a security deposit versus what New Jersey allows you to do. And it’s crazy that they’re different, but they are very, very different. And you have to follow your state-specific laws. So just jumping onto Bigger Pockets and reading a blog post about how one person did it may not be applicable to you. And it’s really important that you know your own state-specific laws. The other big thing is that as you’re learning those and understanding what those laws are, establish your criteria up front for screening a tenant. The way that I did this is I actually have a Google doc for every single property that we own that we manage. And it has the criteria for an acceptable applicant. And it can vary by property because of, again, the type of property that we’re dealing with. But I have those rules laid out. And it says, “You have to have credit that looks like this.” And it’s not usually a credit score number, but it’s no bankruptcies or it’s no bankruptcies in the last seven years or no accounts in collections within a certain time period, things like that. And it’s laid out in detail in that document. I date it. If I revise it, I strike through things, label when those revisions took place, so that if at any point, I’m dealing with five or six or 22 applications, I know exactly how to apply my criteria and figure out if an applicant is acceptable or not. And that really protects me on the fair housing side because if someone comes back later and says, “Whoa, whoa, whoa. You rented to Joe but not me? That’s outrageous. You rented to him because he’s this protected class versus me who is this protected class,” right? And rather than have to worry about all that, I’ve got all my documentation laid out that says, no, these are the criteria that I used. And if I deny an applicant, I reference that criteria in the email that I’m sending them that says, “Hey, you’ve been denied,” or, “We’re not able to offer you a lease at this time, and here are the reasons why we’re doing that.” So that’s really important to protect yourself and build all that documentation. Just like we do like pharmacists, right? If you didn’t document it, you didn’t do it. And so it’s really important to have that up front so that you’re not just making up this criteria on the fly.
David Bright: So one of the other questions with this — because as we get into the law pretty deep right here, are there licensing requirements to be a property manager too? And how does that go? Because obviously, you are a realtor. I’m sure that factors into this. But can someone just rent out their own house without being a realtor? Are there other licensing? Or does that just make it easier for you because you’ve had to learn a lot of this stuff?
Nate Hedrick: It’s a great question, actually. And it’s funny because when I first — when we first bought our property, we got about halfway through the process and my wife said — Kristin said to me, she goes, “Are we allowed to list our own property? Like if you’re an agent, could we do this?” And I was like, “I think so. Hold on.” And I had to double check. But yes, in general, if you are the owner of a property, you can list it for rent. What you cannot do when you start to practice real estate is where David, you own a property outright, I tell you that, ‘Hey, I’ll take care of it for you.’ I will rent that property out for you. I’ll get the tenants. I will do all the screening process. I’ll collect all the rent, I’ll send that to you guys. I’ll give you reports.’ As soon as I talk about doing any of those things on your behalf and you’re paying me to do that, now I’m a property manager and you absolutely have to have a specific license for that. So it’s a real estate license, but it’s actually a subset for a different type of training required to become a property manager. So you can manage your own rentals. It’s absolutely OK. But you cannot manage those rentals for other people and get paid to do it.
David Bright: OK. And then a lot of those rules would also be very clear then at the state level too. Those are generally state-specific guidelines?
Nate Hedrick: Generally, yeah. Again, these could vary by state. But in general, that’s kind of the rule.
David Bright: OK. Perfect. Then one of the other things that you mentioned with the example of your criteria in your Google doc is some of the credit scores and things like that. So by setting out that criteria, you mentioned earlier how you had several people that weren’t viable. So how does that criteria fit into viability? And how does that help you just kind of from a process standpoint?
Nate Hedrick: Yeah. So we’re trying to look at everything from a business standpoint, right? So this is all objective criteria, nothing is subjective. Everything is truly objective data that we can look at. And so whenever someone applies for a property that we own, it goes through a background check, and it goes through a credit check, and then it’ll actually have an application with like income verification, employment verification, things like that. And sometimes you have to go a step further with doing your own research and often, you should. But at least for that initial stage, you should be able to see a lot of that data right in front of you. For example, if they’re uploading their pay stubs, you can get a pretty good idea of what their pay has looked like over the last couple of months if they’re uploading that information. So we take all of that data, objectively look at it, and again, for this particular property that I’m talking about for example, we wanted to see three times the rental require — or the rental payment in income. Right? So if it was $1,000 a month, you need to make at least $3,000 a month, for example. Again, I generally don’t like to pick a credit score number because what if I get somebody — if I set it at 600 as the minimum, they’re 599, like do I break the rule for that person? It just gets messy. So I generally don’t set a credit rule. But I’ll do things like you can’t have a bankruptcy in the last seven years or you can’t have any accounts in collections currently. The other big ones for me is no evictions within the last seven years. Generally, I don’t do no evictions ever because everybody’s got a past, things happen. And again, these can vary by the properties, but we’re always consistent for the individual property that we’re dealing with. And so again, when we’re looking at these applications, we can take those objective criteria, right? If you have an account in bankruptcy in the last seven years, objectively, you do not qualify. I don’t care about anything else. If you hit these criteria and you are excluded, that’s it. Now, if you pass all of those criteria, that’s when we can start to actually dive into the details and start making phone calls and references and it gets a bit more nitty-gritty. But that initial phase can take that big pool of 22 down to four without all the extra phone calls with just a quick glance, which is really, really important.
David Bright: Yeah, that seems like it’s got to be an enormous timesaver in making the property management piece then worth spending time on and worth doing because you’ve found a way to systematize it, make it efficient enough to do.
Nate Hedrick: And it’s important for the tenant too, right? If these people are applying for a place to live, like you’ve got to remember there’s another person on the other side of this. And you just sitting on their application, waiting for somebody better to come along or not responding because you’re not sure what to do or you haven’t established criteria like this, I mean, I can respond within minutes. If someone’s not going to work out, let them move on and look for another property. I don’t want them hanging on hoping that this property works out for them when it’s not a good fit, right? So those kind of things can help you, but they can also help the tenants that are trying to find a great place to live.
David Bright: No, that makes perfect sense. One of the things just in working with different property managers over the years is on my end of it, I see this in the property management agreement. So the contract the property manager signs over — sends over to me to sign that acknowledges what the criteria are for that property. And like you mentioned earlier, sometimes it can be different for different properties. For whatever reason, we can get into that specifically here in a minute with pets, but pets is one of those big questions on there that I often get from the property manager. A lot of times, they say, “This is kind of our standard criteria. Let me know what you think of this,” but there’s a big checkbox for do you want pets in your property or not? And they say that’s very open to, you know, however the owner wants to handle it. That’s kind of something that the property manager doesn’t seem to take really clear sides on. A lot of things, they do. They say, “This is what we suggest. But pets is your call.” So I think since that’s such an open-ended piece, let’s talk about that for a minute. What are some of your thoughts just initially on pets?
Nate Hedrick: Yeah, it’s such a — it seems like it’s so unimportant, right? Like it’s just one checkbox out of 100, but it can affect a lot of things, right? It can affect the repair costs if that pet does extra damage. It can affect the applicant pool, right? If I’m somebody who knows my dog and I are family, I’m not going anywhere that dog is not going. They’re not going to apply to your property if it doesn’t accept pets. And vice versa, right, someone that maybe has terrible allergies to animals may not want to take a pet-friendly house and go stay there because it may not be cleaned the way that they need, dogs might have dander. Really, it can affect your applicant pool in a couple different ways. It may even affect your insurance, and we can talk about this too, but certain homeowners’ associations and insurance companies restrict certain types of animals. And so again, it just — it feels like one of those checkboxes, but it’s pretty darn important and really can affect a lot of different things.
David Bright: Yeah, so I think with again the disclaimer that we’ve said several times now is this is local, state, like all kinds of different layers factor into this, but just kind of general things to think about when you’re thinking about offering to pets or not. Let me ask you a few specific questions here. So one, talk about the insurance piece for a minute. How does insurance vary? And what kind of things do you need to communicate with your insurance carrier if you’re going to have pets in the property or not?
Nate Hedrick: Yeah, so some of them will ask up front if you have a landlord policy, they’ll ask you up front like, are you going to allow pets in this rental? Some types of insurance policies will actually restrict dangerous breeds they’ll call it. It’s a little more rare to see this nowadays, but you will see it where they’ll say, breed X, Y, and Z are not allowed to be on the property. And that’s to protect them from liability, right? What they’ll cite is that these certain types of dangerous breeds have more bites, which means more lawsuits, which means higher liability, which means a higher premium. So look at the policy specifics. I know for the policies that I carry, we don’t have anything restricting us on that. So it’s not that every policy has it, but some do. And so it’s definitely worth taking a look at, whether or not your insurance company will actually be able to play into that too.
David Bright: And then is that insurance factor in to more like property structure damage kind of things that a pet could do? Is it more like the liability like a dog bite or those kind of scary things like that?
Nate Hedrick: I think it’s a bit of both. And even though like landlord, being sued as a landlord for a tenant’s dog or whatever that bites somebody, like that’s pretty rare. It’s difficult to prove that one, the landlord knew that the pet was dangerous and two, you have to prove that that landlord didn’t do something to prevent it, right? So like for example, I know that my tenant’s dog has bit three other people, and I also know there’s a whole in the fence and I didn’t fix it on purpose. Right? Like there’s a whole cascade of events that would have to happen that would lead to this extra bite happening that would be a liability case. But I think because of all those possibilities, that’s where the insurance tends to say, hold on, if you have these types of pets, we’re going to have to either increase your policy or waive coverage for you because we can’t follow it.
David Bright: OK. So it sounds like the take-home there is that if you are going to allow pets, make sure that you have talked with your insurance carrier and that you have done all the things to make sure that you are protected with that pet that may be showing up in your property.
Nate Hedrick: That was like our theme, right, from the insurance episode: Talk to the insurance agent. Don’t try to surprise them.
David Bright: Yes.
Nate Hedrick: That’s the way to do it.
David Bright: No surprises. OK. So second question is, what kind of different considerations — because we mentioned a couple times now different property types. So how might this be different in a long-term rental versus a short-term rental? What kind of considerations would you have there?
Nate Hedrick: Yeah, and I’ll be honest, I don’t have as much experience in the short-term rental space as I wish I did, but I can tell you that if you’re looking at someone with a long-term history, right, you know the pet that’s going to be in there, you ideally are screening them, you’re building in some sort of either deposit or pet rent — and we can talk more about that in a moment — but you’re kind of, you’re building into the long-term lease whereas a short-term rental, you may not have that screening process. You might just say, “Yep, we accept dogs, and here’s how it’s going to work.” And it doesn’t feel like you have that time to truly vet things. But again, when we’re talking about applicant pool, again, my family, the way we travel, I’m only looking at Airbnbs that allow our dog to come with us. So for me, it makes a big difference. And so I think if you have a short-term rental and are thinking about pets or no pets, it may affect your applicant pool. It may affect the availability of people to rent your property. So it can make a big difference over the long term.
David Bright: So similarly, single-family, multi-family would be a big difference there. And so like I know that I’ve got single-family properties that don’t have a fence and probably aren’t super pet-friendly from that standpoint. Same with multi-families. I’ve looked at duplexes that have like two different fenced backyards when they’re more of a side-by-side or duplexes that have an up-and-down where it’s a shared backyard. So kind of with all those kind of things floating around, how might these decisions be different from a different property type?
Nate Hedrick: Yeah. I think ultimately, the way I look at it — and there are probably tons of philosophies out there, but the way that I look at it is it’s probably relatable what we just talked about the long-term versus short-term is think about what that pet policy might do to help or to harm you, right? So if I have a shared backyard and I’m an up-down duplex where a dog running around on the top floor, a 50-pound Rottweiler or 60-pound Rottweiler running on the top floor is going to be pretty disruptive to that tenant downstairs in almost all cases. That may not be the property to have a pet policy on. It might just be a no pets kind of a place. And so the way that I kind of treat it and the way that I look at it is if having pets in that property is going to be an external problem, right, I’m either close to my neighbors where there’s no fence or it’s a shared backyard situation, something like that, it may not be prudent to have pets included just because you’re asking yourself for more problems, more headaches, more phone calls. Whereas if you’ve got that kind of more confined space, single-family rentals, a nice fenced-in yard, that might be a time to do more pets. Or what I’ve also seen too is if you’ve got a multi-family, maybe you do cats only, for example, something that’s a little bit less noisy. Again, as a dog owner, like I fully grasp how noisy they can get. And so those are maybe ways to look at that and say, I’m evaluating this specific property and what that pet policy might do for me as well as my tenants as well as the people living next door.
David Bright: Yeah, and kind of going back to what you said earlier about there’s a tenant on the other side of all these conversations. Like I just think that would be a terrible situation if you had an up-down duplex with a shared backyard, both tenants had a dog, the dogs didn’t get along, you’re trying to let them out at different — you know, like that would just seem super difficult on the tenant side and just not a great situation.
Nate Hedrick: It might mean that your tenant moves out faster because they’re having a terrible time, they don’t like the property. So you’re going to get more phone calls about it, you’re going to lose that tenant faster. Again, they’re not going to want to rent with you again because they had a bad experience. So.
David Bright: Yeah. OK, so our first rental that we had was a condo. And that condo didn’t have fences, it didn’t have a lot of yard space. And there were condo association rules about pets. So if there’s an HOA or a condo association and shared walls and things like that, how does that play into your recommendations and thoughts?
Nate Hedrick: Yeah. I think that’s one of the other things you look at. Just like the local and state laws, you look at the rules that govern your property, whether that’s an HOA or again, municipality guidelines, whatever that case may be, you need to look at those as just as important as the rules that you’re using for the whole screening process because breaking that, I mean obviously you’re going to have bigger problems. So if you’ve got a condo situation that says no pets, then the decision is taken out of your hands.
David Bright: So I know a lot of times in conversations like this, landlords take this initial thought of like, well the pet is a luxury not a necessity, so I don’t have to accommodate and those kind of things. But what about service animals or companion animals or emotional support animals? Like how does all that factor into these kind of decisions? I’m sure that there’s legal implications and otherwise.
Nate Hedrick: Yeah, again, massive flashing disclaimers on this. But yes, if you are — if you’re talking about a service animal or someone with a disability or a companion animal for someone with some sort of disability or medical diagnosis, you absolutely have to accept those animals. You cannot charge extra for them. It’s really important to follow, again, that goes right back to fair housing guidelines. You cannot discriminate against someone with a disability because they have a pet. And so you have to treat that like just as essential as if they were bringing their kid along, right? It’s in the same exact vein. So where it gets a little bit tricky — and I’ve seen this on a lot of like Facebook groups that I belong to for like BRRRR investing and buy-and-hold investing where what if somebody comes to me and they say, “Well, this is my emotional support animal.” Then what do I do? And again, I really recommend looking at the type of certification that person is providing and then referencing your local laws to see what is OK and what is not because you don’t want to create a situation where you are saying, “No, I don’t believe this animal and this paperwork is legitimate,” when in actuality it is, and then you’re getting dinged with a fair housing violation. So really follow the local and state laws very implicitly on this. And just reference that and make all your decisions based on that information.
David Bright: So another question that comes up is the number of pets in the lease because just like a lot of leases have a number of humans that will inhabit this property, like is there something parallel to that people should keep in mind, a number of pets that is a limit in a property?
Nate Hedrick: Yeah, absolutely. There’s two ways to look at this. One is that sometimes municipalities and cities will actually set limits. And again, a lot of this is kind of built from restricting things like commercial breeding or bringing in a whole farm worth of animals into a residential zoned area. But you can actually set your own limits as well. So a lot of times, I’ll actually set the number of pets limit so you can have a combination of two cats and/or dogs or three. And then I’ll also set things like weight limits. So you can say, you know, you can’t have more than a 50-pound animal, something like that to basically create some restrictions and some limits in place. So look at what your city requirements are, but I also recommend you build your own limits as well. It can help with overwhelming amounts of pets in the property. And the other thing that’s important to keep in mind too is if you are allowing pets on the lease, make sure you know the pets that are going to be in the house. I actually have a pet addendum clause in all of our lease agreements that says, ‘This is the pet. Here’s a description of them. This is actually the pet’s name,’ which is like my favorite section to read because people name their animals with kind of weird stuff. But that will actually help you make sure that people aren’t bringing like a guest dog over or they’re surprising you with which cat it is this week or they’re feeding 10 cats outside and occasionally one of them lives inside. Like you don’t want any of that. Make it very clear, like this is the animal that is being — that is living on the property. They’re registered with the county. And if I get a different animal or I add another one to the house, like I’ll let you know. And I’m very upfront and want to be very clear about that because if I show up to a rental inspection and there’s five cats when there was only supposed to be two, like that’s a whole new conversation.
David Bright: OK. From a ROI standpoint then, I think as, again, detail-oriented pharmacists are thinking about, what’s the ROI change on this? So on the positive side, I would think that if you made improvements to a property that would help market it for pets, you could theoretically even increase the rent. Have you seen any specific improvements like maybe a pet door or seen anyone put in a fence or like any other tips there if you’re strategically trying to make a property pet-friendly?
Nate Hedrick: Yeah, for long-term rentals, the big one is a fence. I have seen so many people that have come to our properties recently and said, “This is the perfect place for us because it has a fenced-in yard for my dog.” Like, “You allow pets, and it’s a fenced-in yard with a gate. That’s amazing.” So that’s a huge game-changer. The other once I’ve seen is actually some short-term rentals that are geared toward pets where they’ll have like a doggie door or they’ll have like a whole setup for — like with a dog bed and like dog bowls that come with the property to make it feel like this is the spot for my pet. And again, you know how crazy pet lovers are like us. So you’re going to want to rent that property more frequently. So that’s the kind of stuff that I’ve seen be really beneficial.
David Bright: So almost some niche marketing then that you could do to a pet owner to try to drive up rents and increase.
Nate Hedrick: Absolutely. Absolutely.
David Bright: And I would imagine things like hard surface floors instead of carpet, like there’s got to be other kind of considerations too that pet owners are probably familiar with but folks like me that don’t have a dog or a cat in the house are probably a little less fluent in.
Nate Hedrick: I would say if I had a rental with a lot of carpet, it’s almost immediately no pets. Like I know what our dog can do to our carpet, so forget it. Like I don’t want someone else’s dog doing the same thing. I’d be changing carpet every tenant turnover.
David Bright: Yeah, so with that comes kind of the negative side of this, right? Like what do you do when there is damage from a pet? So how do you from the risk-averse pharmacist standpoint, how do you protect against some of those potential risks that could take place for folks that invite pets into their rentals?
Nate Hedrick: Yeah, and this is a big point because I know a lot of people that specifically have a no-pet policy in all their rentals because they’ve dealt with the problem before where a dog or a cat or whatever destroyed a portion of a house or chewed through doors or, you know, completely ruined all the flooring. I mean, there are horror stories like that. And it can just — it can scare people off. And so there are a couple ways to mitigate that. One, again, goes back to our very beginning of this episode, which is great tenant screening. Good tenants, actually meeting the animal ahead of time, that’s something I usually invite people to bring their animals with them to the open house. I mean, I haven’t had too many people like walking through with cat carriers, but I did have somebody bring their puppy with them to one of the showings this past weekend, which was kind of awesome. It’s good. Like meet the animals, understand how the person takes care of them because that will tell you how they’re going to take care of the house. And then from a financial standpoint, you could do things like a pet deposit, pet rent, you could do a separate security deposit. What you do, though, is very state-specific. So again, in Ohio, they actually prefer pet rent instead of a pet deposit. They don’t like the idea of non-refundable — Ohio actually restricts the idea of a non-refundable deposit. And so you can do a separate security deposit for the pet, but then if the tenant is the one that trashes the property and the pet’s not actually doing the damage, there’s questions about whether or not you can keep that. Again, it just gets very messy. So the way that we handle it for a lot of our rentals is adding an additional pet rent. So if you have a pet, it’s an extra $25 or $35 or $45 a month. And every pet gets that additional rent tacked on. That money is treated as rent, meaning if it’s late, the whole rent is late, meaning the eviction process can start. I mean, it becomes another piece of that rental payment. And you can use that money to offset the costs of what the damages that pet is going to cause or may cause. So there’s a lot of different ways you can do it. But again, like we’ve been saying 10 different times, check with your local and state laws to make sure that you’re doing it the right way because it is very state-specific.
David Bright: OK. Then any other tips as we close out here on just things to think about when you’re trying to decide about accepting pets or not?
Nate Hedrick: Yeah, I think one of the things we didn’t talk about that I think is important is if you get to the point in the screening process where you’re calling previous landlords and speaking with other landlords of that prospective tenant, ask them about pets. You know, did they keep pets? Did you have any complaints about their pets? Did they cause any damage when they left? Things like that can give you some insight. Landlords that are especially two landlords ago, right, not the current landlord but the landlord before that, they’re usually the ones that you really want to talk to. If they’re a bad tenant and they’ve got bad pets, the current landlord is going to tell you, ‘No, they’re fantastic. Please get them out of my property and go to your house.’ But the landlord from two tenancies ago, they’re the ones that are going to give you the truth about how that person handled themselves, how they handled their pets. That’s the one to talk to and get the information from.
David Bright: Yeah, and I think one thing that I’ve seen, again, not being the property manager, not making any of those phone calls or really having a lot into that is one thing that I’ve done also is just ask the property manager for a recommendation on the property-specific level. Like I’ve had a property manager say like, ‘You know what, the neighbor has a loud dog. You probably don’t want to put a dog next to the house with a loud dog. For this tenant cycle, let’s just say no pets for this property that will probably just bring the drama way down.’ Or similar kind of thing, say, ‘This property already has a great fenced-in yard. If you’ve thought about pets, this would probably be a good property for that.’ And so those property manager recommendations as they just kind of know the local environment, those kind of things, can just be super, super helpful on this.
Nate Hedrick: Great tip.
David Bright: With all of that, I know we’ve mentioned like 14 times now law and disclaimer and things like that, so any resources that you would suggest if someone’s trying to do this on their own, they’re trying to get to know those laws and they don’t happen to also be an attorney, what should they do for figuring some of this stuff out?
Nate Hedrick: Yeah, there are a lot of resources out there. One of my favorite kind of like default go-to resources is actually a book called “Every Landlord’s Legal Guide.” It’s put out by NOLO every year. It’s a huge meaty book. I think it’s like $45. But it comes with everything you need to know about your state-specific laws and what you are and aren’t allowed to do. There’s even a whole section in here on pets. And again, they update it every single year. And they’ll tell you OK, in all 50 states, here are the rules for pet deposit versus pet rent versus what you can charge versus what you can keep. It’s very specific. They talk about what you can do with service animals or what you can’t, what you — I mean, it’s very, very detailed. And so if you’re looking for kind of the starting point for all that, I definitely recommend that book, “Every Landlord’s Legal Guide.” You can get it on Amazon. The other thing I really like about it is that it actually comes with downloadable forms so if you buy their book, you can then go to their website and you can actually get sample lease agreements that actually are state-specific to you. And that’s actually how I started building my leases was using this guide and using some of the documents that were in it to build my lease out in a way that I knew was going to be legally compliant. So that’s a great place to start. And then if you have more specific questions like let’s say you get a question from a prospective tenant that doesn’t quite fit the mold and you want to know what to do, that’s when you want to be looking at your state-specific laws, checking with your local municipality about what they would recommend. And that’s kind of the second.
David Bright: Yeah, and in addition to that, other than the obvious like you can always talk with an attorney. And that’s not necessarily a bad thing to do. Sometimes it’s a very helpful thing to do. The local landlord associations can also be a great resource as well because oftentimes, these questions have come up before and people have asked and some of the local landlord associations also have forms, some of them even have an attorney that can offer some limited legal advice too. So definitely resources out there.
Nate Hedrick: Yeah, or even the real estate investor associations as well. They’ll probably have the same style of resources. Great idea.
David Bright: Yeah. So any other closing thoughts on general recommendations and thoughts with tenant screening and pets?
Nate Hedrick: No, there’s a lot to it. And I think we’ll probably have another episode like this when we can dive into more specific things. I think for the pet standpoint, I think we’ve covered a lot, but if you guys have more specific questions, things that maybe you’ve come up in the past or just a story to share about renting with pets or without pets, we’d love to hear about it. Drop us an email, drop something in the YFP Real Estate Investing Facebook group. We just, we’d love to hear more stories from you guys. So please reach out.
David Bright: Sounds perfect.
Nate Hedrick: Great. Well again, really appreciate you guys joining us. I hope this was helpful to everyone, and if you have other stories you want to share outside of the pet stuff, please reach out to us. Head on over to YFPRealEstate.com. You can actually apply to be a guest on the show. If you’ve got other stories to share or you want to just tell everyone about what you’re up to on the real estate side of the house, we’d love to hear from you. So please reach out. And talk to you next time.
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