The one about the perfect tenant
The one about the perfect tenant
Renting out your flat to tenants that don’t kick in doors, sitcom style, is totally doable if you take a few things into account - and come prepared
I feel embarrassed even having to ask this … but the headlines, you get it, right? The friends hommage? Okay, good. Sure, sure, sure those six had a moment again, with the big reunion special and all … but that’s not why we decided to do that. If anything, the headlines came to be like the entirety of our real estate adventure came to be I guess: stumbling into something that sounds fun and like a good idea in the moment - only to later realise that you might be onto something. We claim that this newsletter marries the bone-dry financials of property investments with the tantalising world of pop-culture - and what could be more pop-culture than a low stakes TV show about six friends who drink too much coffee that went on to inspire serious think pieces more than 20 years later? Could we BE more into friends?
I also don’t need to point out the second obvious parallel then - the amount of stories that have been written about one aspect of friends in particular … you guessed it, the real estate side of it all. How could Monica and Rachel afford the massive apartment in the West Village while rarely seeming to work at all? And what would it be worth today? (Well above $2 million if it was renovated, says the expert, or a condominium). That apartment sure inspired some fandom: the purple walls! An open kitchen! And a balcony, perfect for viewing ugly naked guy! The fascination birthed paraphernalia like a (shockingly detailed) Lego set as well as a floor plan sold for 22 bucks on etsy. It’s a wild world.
Here’s one piece that hasn’t been written, though, and in my next newsletter that’s just friends trivia, that’s where I will start. The six friends ranked - from worst to absolute nightmare tenant. I mean, seriously. I would have to watch all 236 episodes again to count in earnest how many times a door was kicked in - but I already know it happened A LOT. The chicken and the duck, in an apartment building? Unlikely to earn you “best tenant” points. Nevermind the minor offenses like a repeatedly pizza-carton-clogged trash-chute or constant noise caused by dancing, jumping, pranking, a pinball machine and a flute-playing manny. Draeger sure seemed awfully patient.
Jokes and friends-trivia aside, though: while we did have a hole in the apartment door (Joey, is that you?) we have been fortunate with those renting our apartments and no poultry has been reported as living under our roof. It seems obvious that how you select tenants in the first place is the key to how well the relationship is going to go generally. Clearly, the horror stories that you hear about rental disasters are most effectively avoided by placing great emphasis on doing your due diligence early in the process. Which got me thinking about what it takes to find and select the right tenants. From our experience, there’s a couple of key learnings. Let's get to it.
The maybe bad news first: it probably makes sense for you to do this yourself. In the early days we actually had realtors help with tenant selection and that seems to be the default - turns out, that’s not the way to go. Maybe unsurprisingly, the biggest issues occurred with those tenants that we didn’t choose ourselves
In a similar vein, we now actually insist on meeting everyone who will live in the apartment. Often viewings will be done by couples or families together (for obvious reasons) - but if only one of them is present we ask to make a second appointment to meet the rest of the gang
This is a bit of a no-brainer - but make sure to really get all the documentation and paperwork you can and read it diligently. More on that below
While it’s super important to feel comfortable with your future tenants on a personal level and assess whether the chemistry works (in both directions) - also think about the rest of the house. Ideally, new inhabitants will fit into the existing community and add value for others living there (think younger neighbours potentially helping an elderly person upstairs)
When you are looking for a new renter - consider your perfect candidate and tailor the ad specifically to appeal to your target audience. Is this an especially child-friendly apartment? Then say that in the listing! Are you hoping to rent to a couple? Students? All that should be obvious in your choices of where and how you advertise
Obviously, it’s against the law to discriminate against those applying, so not even going to mention that. On that note I do believe, however, that your privilege as a real estate owner offers the opportunity to have a positive impact. When presented with all the paperwork, maybe consider renting to those that would probably find it hardest to secure a flat on the market generally - single mothers, immigrants, those just starting out in their careers for example.
Like the banks trying to limit their risk of loans defaulting by double- and triple checking your credit score, you kinda wanna do the same with those applying for tenantship. Luckily, there’s a pretty standard process for that which doesn’t require quite as much paperwork. The documents we require are the norm I’d say (adding the German words for a bit of a laugh / vocab lesson) - and here’s the full list:
Ausweis / ID
Selbstauskunft / Disclosure form
While many applicants at this point bring a full set of printed out documents in a folder, it’s definitely good to keep a few of these handy to be filled out by interested parties at a viewing
Einkommensnachweis / Proof of income
This is to certify employment status and income. Typically, it’s three months worth of payslips - but could obviously also be tax returns, bank statements or something else in the case of freelancers for example. Folks with less or a less steady income sometimes also bring a guarantee from parents for example - flashback to my uni days for sure
Mietschuldenfreiheitsbescheinigung / Certificate of previous rent payment history
This might be the most important document actually. Have people request a signed certification from their previous landlord, stating that they have paid rent on time and left the place in fine condition. This is like a job reference, but for real estate. And there’s downloadable templates all over the internet. Like this one
Schufa Auskunft
While the uninitiated might think this is German dance, accompanied by an Oompah-band - Schufa is just as German, but not quite that. Explanation below
Obviously, there’s different ways of obtaining this paperwork and you should think about how you want to structure the application process, ahead of time. That might sound complicated and like it’s a lot of work, but I think it will actually make your life easier down the line. Do you want applicants to email you a form with all their personal info before you arrange for viewings - or do you make a pre-selection on some other criteria and then collect paperwork when you see folks in person? Do you include a phone number for more direct access but at the risk of being pummelled with calls? Depending on where and what you are renting out, be prepared for there to be a lot of interest - like “several dozen applications” kind of interest which is what we have encountered every time we had a flat to rent. So it makes sense to be somewhat organised, especially if you schedule a lot of viewings in quick succession (we would advise against group viewings that are almost impossible to control and do not give you a good sense of applicants). In either case, whatever process you want to put in place can already be communicated clearly in your listing to manage expectations.
So on that oompah band - the German institution that is Schufa … the weird sounding name actually is an acronym, standing in for the beaut that is “Schutzgemeinschaft für allgemeine Kreditsicherung” - which means credit protection agency. As you can aptly deduct from the name, Schufa's purpose is to protect its clients from credit risks and I have never encountered a landlord who hasn’t been asking for this certification. Schufa processes more than 165 million credit checks each year, with bigger real estate portals even having them built into their products. Nobody loves them but there really isn’t a way around them. Luckily, getting a certification is pretty straightforward - it takes is a few clicks and 30 Euro. There’s a great business model for you (they sell 2.5 million of those self-checks by citizens yearly) …
I touched on discrimination above - but important enough to dedicate another couple sentences to the topic. As much as you want to get to know your potential tenants, German law is pretty clear about what you can and can not ask when interviewing potential tenants. According to § 242 Bürgerliches Gesetzbuch (BGB) you may only ask those questions that are pertinent to the actual apartment hunt without being disproportionately intrusive. In that vein, asking about a job or financial situation is fine - nosy questions about dating life, (planned) pregnancies, health status or hobbies are off limits! Even asking why someone is looking for a new place would be within the category of personality rights not to be violated - so be careful with questions, even if some applicants may volunteer this information in the hopes of being considered. You know how friends, all pop cultural reverie aside, got into trouble years later for being the whitest show on television? Discrimination - never okay.
As mentioned, we have been lucky with our tenants so far. No crazy disasters, no outstanding payments. Which means … more time on our hands. Which we could use to rewatch some old friends episodes? If only to count how many times Chandler, Rachel and Co. actually switched between apartments thinking about where to put the Barca loungers and who would get the white rolling dog - but certainly not about adapting their rental contracts. That ranking I wanted to do? I think they are all a nightmare. Purely from a tenant perspective of course.
Next time, on Rente aus Stein: New year, new newsletter? Nah, it’s not quite as dramatic … but we do have some news!
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Disclaimer: We are not lawyers (sadly) and as such can’t give you legal and/or tax advice. We are simply telling our story in the hope that it’s inspiring to you.