SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

Kevin

Buying As Is – How Much Did The Surprises Cost Me?

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Almost every property I have purchased during my real estate investing career was purchased in an “As Is” condition. Purchasing “As Is” is simply the way most real estate investment deals are made. Think about why. Property owners sometimes let their property become a costly burden. They do not have the cash to fix it or do not want to fix it. They just want to get rid of it. You, as the investor will purchase this property (at a discount) and solve the seller’s problem. Those repairs mean profits for you.

As an investor you need to understand what “As Is” means. You need to know what it means when you consider a potential property for purchase and what it can cost you. I can tell you, that in almost every property I have purchased “As IS” that I have missed something that needed to be repaired. Sometimes those misses were small, but other times they were significant and cost me big bucks.

What “As Is” Means

When you purchase a property “As Is” you are purchasing it with all known and unknown defects. The seller makes no warranty on the condition or the systems of the property. As the investor, the name of the game for you is caveat emptor or buyer beware. You have to beware before you make your offer of what it will take to repair the property to either make it a decent rental or offer it for a retail sale.

Knowing what to look for takes some learning, skill and effort. Honestly this is one of the most nerve wrecking things a new investor can face.. But buying a property “As Is” doe not mean that you cannot protect yourself from your lack of experience. Buying “As Is” does not mean that you cannot inspect the property, or have someone with more knowledge inspect the property for you. You can and should always put a clause in your purchase contract that allows you to fully inspect a property over a certain time period. In this way, if you feel overwhelmed about the condition, you can bring in someone to help you.

If the repairs cost way more that you anticipated, than you need a way out of your contract. You need an escape clause or at the very least you need to be able to renegotiate with the seller. In my experience, when you find something seriously wrong and show the seller the issue, most are more than willing to renegotiate the deal. The key of course is to find it before you close.

As I said at the beginning of this post, I have missed a few things over the years that have cost me significant amounts of money. What were some of these items?

  • Collapsed Sewer Lines – Many properties I look at are vacant and the systems have may not been used in years. Until you turn on and start flushing the toilets you cannot know that the sewer line is crushed. This problem has occurred many times and it is often a $5,000 plus repair job. Today I look for depressions in the yard, green grass where everything else is dry or pay the bucks to have my plumber run a camera through the line.
  • Rotten Floor Joists – You cannot see water leaking behind the walls and the evidence of that leak may be hidden as well. These leaks have added $2,500 plus to several rehab jobs over the years. Now I “test” the floors around tubs, sinks and toilets by bouncing on them to feel for any movement. I will also use a 5 in 1 tool to feel and poke at walls to check for evidence of rot. These tests are not perfect, but they catch mot of the problems or make you look closer.
  • Electrical Panel Too Small – Every rehab usually includes upgrades such as HVAC, washers and dyers, etc. But if you do not have the proper circuits for these heavy appliances, they are not going to happen. More than once in my early career I assumed that there was enough power simply because the place had power on. Not anymore. I always check the electrical panel because upgrading it is a minimum of $1,500.

Were the above issues deal breakers? No. But they sure hurt my bottom line. I was able to absorb most of these costs because I include a very important line item in every rehab budget. That line item is an oops. Oops, I missed that. How much should your oops be? At least 10% of the total rehab budget. If you do not use your oops budget, great! But if you need it you will sure be glad that it is there.

Buying investment properties is just going to involve buying them in an “As Is” condition. Investors need to understand what that means, understand their limitations as a property inspector and also understand that you will never catch everything. There will always be something that was missed which makes having a good purchase contract and an oops budget crucial.

Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors.  Subscribe to Smarterlandlording here. Contact Kevin here.

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Should I Buy During Covid-19?

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With all of the uncertainty related to the covid virus, real estate investors are asking if it is a smart move to buy properties right now or should they wait until things settle down a bit. It is a good question to ask as the future is not quite as clear as it seemed to be just a few months ago. But, despite all of the uncertainty I would answer yes to the question. Yes, that is, if the property is a good cash flowing deal. It is important to remember that real estate investing is all about the numbers, especially the cash flow number. And if the cash flow is positive, then I say buy.

That said, I would add a couple of caveats that investors should consider these days. First, the market for investment properties is pretty frothy right now. Everyone is chasing investment real estate. I have had more people ask me about real estate investing and how to get into it recently than I ever have in the past. Prices are high right now. I am seeing prices for properties here in the Memphis area that I never thought I would see. But then again rents are up as well and investors are pushing into different markets and different parts of town. How long will this party last? Who knows.

Second, a pandemic can definitely affect both prices and cash flow. Obviously, if everyone is locked down and economically suppressed, or even worse become sick and die, then demand is going to slow significantly driving prices and rents down. Plus the pandemic, or at least the fear of it, may cause people to rethink where they want to live, thus affecting market values. People may no longer want to live in a downtown high rise, clustered among several of their “closest” friends. People may opt for perceived safer spaces in the suburbs or in smaller duplex type properties. What the future holds in this respect is not quite known as we are still, as a society, trying to determine exactly how and if this virus will affect us. In fact, some larger investors are already betting on this move to suburbia.

One thing for sure, the future is uncertain and it is hard to plan. So much has happened in recent months and their long term effects on the real estate market remain to be seen. The bottom line however is still all about cash flow. A real estate investor simply must have positive cash flow to be successful. But how does one calculate future cash flow during these uncertain times? Can you continue to plan on increasing prices and rents? When will the music stop and who will be left holding the bag? It really is hard to know right now.

At the very least, investors have to think that they are perhaps seeing the top of the market and become a bit more conservative with their future rent and price projections. I might also utilize a “covid discount” in my asking price to try to mitigate potential future risk. Will I acquire the properties with such a discount? Maybe, maybe not. But then again I was overbid on many properties in 2008 and 2009 only to pick them up at a later date when the music finally did stop.

Keep a close watch on your market. Watch the trends and keep an ear to the ground. And always, always, listen to your numbers. If the future cash flow appears to be in positive territory, even with all of the uncertainty, then by all means go for it.

Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors.  Subscribe to Smarterlandlording here. Contact Kevin here.

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Landlords – Aim For Stability

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There is a lot going on in the world right now. The stability we had just six months ago seems to have completely evaporated. Covid is still out there with all of its economic issues and now there is social and political unrest. How long will it all go on? Will things flare up again? Will they get worse? Will the November elections bring relief or more issues. Things look pretty uncertain right now. It is difficult to say when we all might return to some sense of stability.

We landlords, despite all that is going around us, can and should aim for stability in our our lives and within our own businesses. We have to. We have to strive to be a stream of calm in the chaos. It is simply the best way forward. What can you do to aim for stability? Here are some thoughts.

Know What You Can Control – We cannot control everything around us. Understanding that is the first step. Knowing what we can and cannot control will lead us to examine what we can control.  We can, for example, control our expenses. We can also control the management of our properties. We can control who we let live in our properties and perhaps most importantly, we can control ourselves.

Control, or even just the appearance of it, is something that may appeal to many people right now. Aiming for stability by controlling what you can may attract better tenants, keep your good ones from moving on, and present a well run operation.

Work With Your Tenants – One major disruptor to our businesses is tenant turnover. To aim for stability you need to work hard at heading off this disruptor. The last thing any of us landlords need right now is a bunch of tenant turnover. Turnover is expensive and leads to unpredictability.

Consider if you would rather have a vacant unit right now? Will you be able to find a new tenant? Will these new tenants meet your qualifications?

Working with your tenants, talking to them, even helping them if need be, is a smart strategy these days. It allows you to work with what you know and keep some stability in your world.

Focus Your Limited Resources – Now is a good time to go over your budget with a fine tooth comb. Where can you trim a little? Are there items that you have forgotten about or let go a bit too long and do not use anymore. Can you find better rates? Can you find better service? Now is a good time to put your limited resources towards better management to aim for stability.

Keep Some Cash – Nothing can get one through a difficult time like cash. Yes, keep some in the bank but also keep some at home. ATMs may be disabled and banks may be closed due to civil unrest or economic conditions. You just never know. If you need to make repairs and cannot get access to your money for whatever reason, then you are adding instability to your business.

Keep Your Cool – When you lose your cool it’s over. No matter who you loose it with, be it your tenants, your lender, your contractors or the whole world, its over. You have to be the level headed person in these uncertain times to achieve stability. Be the reasonable one. Seek to understand and find solutions.

Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors.  Subscribe to Smarterlandlording here. Contact Kevin here.

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Good Tenant Screening Can Prevent Evictions

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Jurisdictions across the United States have halted or severely restricted evictions.. Only now, as I write this in late May 2020 are some states like Texas beginning to reopen the courts. How long will other jurisdictions remain closed? Will new laws be passed to make evictions, especially no fault evictions, more difficult? What if they decide to shut everything down again? What if, what if?

One thing we do know for sure, things will never be the same as they were before. We landlords can likely rest assured that courts will make the eviction process more difficult, that local governments will pass laws to restrict the types of evictions that can be done or institute new hurdles to do so. Some jurisdictions are even setting up systems (with tax dollars) to help tenants fight evictions.

The covid pandemic and the government response of closing the courts has emphasized the importance of one vital aspect of landlording, tenant screening. Tenant screening, especially now without the hammer of the courts, is perhaps the most important thing a landlord can do. It is more important that finding properties, repairing them, or even acquiring funding. Having a deadbeat tenant, especially one you cannot remove by the eviction process, will ruin you and your business.

With the courts closed tenant screening simply has become much more important. As a landlord, you just cannot let potential deadbeat tenants into your property. You have to learn and hone the skills to spot potential problems before they become your problem. I can tell you after over 15 years in this business, almost every tenant problem I have had, from evictions down to the complainers, has been because a red flag was ignored or an issue overlooked during the screening process. Yes, every problem tenant ultimately reflected back to me. In other words, I have had to learn the hard way no to ignore the signs or my screening criteria.

During this pandemic, several of our tenants have had problems. How could they not? Large sections of the economy have after all been shut off and their jobs have evaporated. Of course some people are going to have problems meeting their obligations when they cannot generate an income. But everyone has worked with us so far. Why? One, because we worked hard at screening and bringing in decent people. Second, we worked with them when they hit a problem.

Over the years and after screening hundred of tenants, we have learned to recognize the subtle signs of deeper problems such as a lack of interest, a sense of urgency or answers that seem just a bit too rehearsed. We have found that people are good at lying and you have to be better at detecting the lies. Deep down most of us want to trust and believe what others say. But you simply cannot. The reality of the situation is that as a landlord, you cannot accept anything you are told at face value. In fact, I guess I would go so far to say that we have to assume that we are being lied to until we find out that we are not.

Recognizing red flags and conducting thorough tenant screening are skills that can be learned. To help you, I wrote about 21 major red flags that every landlord should look for when screening tenants which you can get for free by clicking here.

Will you still have to learn some things that hard way like I did? Yes, most likely. But by educating yourself now and by starting to hold folks to a higher standard you can keep many of the headaches out and avoid the problems of closed eviction courts altogether.

Eviction Court Closed? Cash Can Persuade

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Eviction courts in many states are closed right now. Here in Tennessee the State Supreme Court has halted evictions until the end of May. This hold was deemed necessary because so many have lost their jobs or been otherwise impacted by the great supression. However, the closing eviction courts has also provided an incentive for some to simply not pay the rent and forced landlords into a bit of a corner.

But without the courts behind you, what can you do?

You do have options. You cannot use force, but you can certainly try to persuade. Evictions are costly and confrontational anyway. They create animosity and leave a potentially very angry person in control of a vary valuable and easily damaged asset. In over 15 years in the landlording business we have only been to eviction court three times. Instead, we prefer to use the power of persuasion and the power of cash. Sure, force may feel better at the moment the judge rules in your favor, but trust me, the hidden costs are always there and will make themselves known before you actually do get that tenant out.

The persuasive method I am referring to here is of course cash for keys and since I have written about that before I will not get into too much detail about it here. Suffice it to say that instead of using force, you pay your deadbeat tenant cash to leave and hand you the keys. We have successfully used this technique many times over the years and it is a very good option to use in these evictionless times.

Yes, I understand that it hurts the pride a bit to actually pay a deadbeat tenant, but that hit to the pride is a lot less painful in my experience than the expense and stress of an eviction and setout. Plus, what other option do you have right now? None.

How much cash should you pay for the keys? Depends on your situation, market and circumstances. You need to ask yourself how valuable it is to you to get the tenant out. How much rent are you losing? How behind are they? What will they take to leave? How stressful is it to you? There are many factors to consider but a few hundred dollars often does the trick.

Make your tenant an offer and see where it goes. Start low. Consider making an all cash offer or perhaps including a moving van or something else they want. It is up to you to be creative in these interesting times.

When pursuing the cash for keys option there are two “should haves” and one absolute “must have” for the landlord.

First, there has to be a certain date when the tenant agrees that they will be out. Of course you can always give a day or two leeway if you see that effort is being made but you have to have a set date. If they do not move by that date, they do not get paid.

Second, we insist that every piece of furniture, belonging and trash, down to the wire hangers in the closet and the Taco Bell sauce packets in the kitchen drawers, are removed and the place is broom swept clean. The last thing you want is to pay a tenant to leave and then have to pay someone else to remove their unwanted, stained sleeper sofa and other garbage.

On the “must have” side, you must get a signed release of the rights of possession form. Download one here. This form is a must because your tenant has to return legal possession of the property to you. You need something to show a judge, if it ever comes to that, that you have received legal possession from the tenant and that they have removed all of their belongings. DO NOT hand them the cash or take the keys until you have that signed form in your hands. If they will not sign, then no deal.

The courts will reopen someday. In fact, as I write this, Texas already has. You can make that known to your tenant and tell them that your offer will be much better than the one the receive in eviction court. Cash for keys might just therefore solve your problem.

Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors.  Subscribe to Smarterlandlording here. Contact Kevin here.

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Plan For The Future

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I wrote last time about the current difficulties planning for the future during the great covid suppression. There are just so many unknowns right now that planning anything is tough. But, even in the worst of times (which we are no where near) we entrepreneurs have to try to do some forward thinking. We have to thoughtfully consider what may lie ahead and what we could do to both grow our business and survive. Here some of my thoughts.

Of course, current thinking is going to revolve around the covid virus along with government’s and society’s response to it. What we are all experiencing is simply unprecedented in our lifetimes. For example:

  • Unemployment is likely above 20%.
  • Many small business will never reopen again.
  • Several large business will file for bankruptcy.
  • GDP has declined by almost 5% here in the US.
  • The Federal Reserve is creating a lot of money out of thin air.
  • Lenders have significantly tightened their standards or are not lending.
  • Calls for rent strikes and government intervention continue.
  • There does not seem to be any good way out of all of this.

What does this mean for landlords, or for any other business for that matter?

  • It is going to take a lot longer to get through this than we had all thought or hoped. There will likely not be any quick recovery.
  • Things are going to get more costly due to inflation.
  • Calls for regulation and other government interference will grow as the crisis continues.
  • Some of the regulation and government interference that was inspired by covid will never go away. The level of regulations will never go back to what they were.
  • Taxes of all sorts are going to increase.
  • Politics is going to become even more divisive.

I hope I am wrong, but the above does not paint a very optimistic picture. Now, I am not saying we are headed towards a dystopia, but believing that impacts will be minimal and contained or that “this time it’s different” are I think, misguided.

So what to do? What do we plan for?

First, I would think about items that you can control in your business. What expenses, people and resources can you as the business owner control? Some expenses such as maintenance are directly under your control. Others like taxes and mortgage payments come with steep consequences if not paid. When you think about it, there is often not many expenses in our businesses (or any business) that can be easily cut without dire consequences. Knowing that, I would carefully consider adding any new expenses or expanding significantly until things become a bit clearer.

If you have employees or contractors, you may have some hard choices in the near future as these expense items are often some of the largest expenses a business has and has control over. Is it wise to cut employees or farm services out to professional managers at this time? Maybe. Again however I think having direct control and access to employees and these types of resources may make our business more nimble and better able to weather this crisis.

Secondly, do not take the easy way out. Seek out options in places you have perhaps not done so before. It is can be easy and tempting to simply throw cash at a problem to make it go away, but that may drain needed reserves too quickly. I think we are all going to have to work harder in the near future to trim costs, search for the best prices and prioritize projects.

Third, consider that your tenants may have a difficult time paying rent, not pay at all, or move back home with mom and dad. How will that affect your business? What would a 10%, 20% 30% drop in revenue mean for you? What are the actual numbers? How would you survive that drop? Could you make enough cuts in expenses? If not, what are your options? Best to learn what these numbers are and think of possible options now.

Fourth, how could you respond to keep at least some revenue coming in? What would make you stand out in your local market and cause tenants to choose or stay with you over going somewhere else? Could you reduce rents or add some other incentive? How much could you reduce rents? Do you know the numbers? Again, it is best to figure them out now as we may all need to get very creative in the coming months or years.

One thing is for sure, there will be an other side to all of this and most of us will hopefully be there to see it. It just may take a lot longer and be more difficult to get there than we first thought. We may all however need to tighten our belts and get creative to get there. But any plan begins with knowing where you are today and where you hope to be. So beginning with your own numbers today and projecting into tomorrow is a very good place to begin a plan for the future.

Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors.  Subscribe to Smarterlandlording here. Contact Kevin here.

Subscribe to Smarterlandlording and receive a Free Report: 21 Tenant Screening Red Flags



The Difficulty Of Planning For The Future

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At the heart of every business, landlording included, is entrepreneurial planning. Every business has to plan for the future in order to grow and develop. We business owners have to plan to keep expenses from outpacing revenues and to keep all of the parts active and functioning. Otherwise things can go south very quickly.

This entrepreneurial planning involves asking questions and interpreting what markets are trying to tell us. Whether we realize it or not, everyday we are in business we are in the process of planning. We think about and try to determine what rental income will be, what real estate is selling for, what contractor labor will cost, what repairs can be done today or postponed, and on and on. In sum, we are doing our best to try and predict the future.

In the best of circumstances trying to predict the future is difficult enough. None of us has a working crystal ball and we can only make an educated guess. But, guess we must and guessing wrong can hold dire consequences. Not only might we loose money, we may loose our entire livelihood. Yet, we must try and hope that our education, experience and intuition carry the day. Today however, with the supression of the economy, it has become almost impossible to do what every business must do – plan.

With much of the world effectively shut down, the feedback that we would normally receive from our tenants, from contractors, from property sellers, from property buyers, from lenders and other investors is at best skewed and at worst gone. How can we, or any other business for that matter, plan for the future right now?

Because we cannot plan, there are ripples through the economy and society that can be difficult to see and discern, but are nonetheless very real and lasting. For example, someone’s plans to expand a property portfolio may be on hold, or major rehab jobs might be postponed meaning employees or contractors are never hired and materials are never purchased thus compounding the problem. Uncertainty rules the day right now for the business owner and it is translating into losses throughout our communities.

Should I buy that house to rehab and resell? Will there be any buyers when I am done with the rehab? What price will I be able to ask for? Should I tighten up my buying standards? Where are rental rates heading? What about vacancy rates? Will that property cash flow if rents drop or vacancy rates increase? Should I just wait it all out?

I just don’t know.

“I just don’t know” seems to be the answer to almost all plans right now and I fear that it will be more difficult to shift back to being able to plan than we realize. I know that we and our business have held back on some projects and spending until things become clearer. I do not think that I am alone.

What about you? How are you thinking abut the future of your real estate investing business right now?  

Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors.  Subscribe to Smarterlandlording here. Contact Kevin here.

Subscribe to Smarterlandlording and receive a Free Report: 21 Tenant Screening Red Flags

The SmarterLandlording Podcast – The Real Estate Investor’s Guide To A Stronger Purchase And Sale Contract – With Attorney Joe Kirkland

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Episode 18 is a discussion with Attorney Joe Kirkland on one of the most important documents you will use in your real estate investing career.

Download the podcast here.  Or, check out the SmarterLandlording Channel on iTunes

Order Your Copy of Advice From Experience To New Real Estate Investors Today!

Available in E-Book or Paperback

Free Resources Mentioned In The Show

Kevin’s One Page Purchase and Sale Contract

Kevin’s Estoppel Agreement

Joe Kirkland’s Contract Terms

Joe Kirkland’s Seller/Owner Financing Contract Terms

Links You Should Check Out

National Reia – Find a real estate investors group in your area to network with other real estate investors.

Memphis Investors Group – Visit the the heartbeat of Memphis real estate to network with hundreds of other real estate investors.

Want To Contact Us?

Find Joe and I at the Memphis Investors Group almost every month.  We meet on the second Thursday.  The details are here.  

Contact Joe at 901.333.1360 or by e-mail at joe@closetrak.com

You can find me at my blog, Smarterlandlording.com

And you can like my Facebook page or connect at Twitter @Smarterlandlord.

Like the Intro Music?  Check out my good friends in the band Kitchens and Bathrooms (Kind of fits right!).  They write and play some awesome, original music from right here in Memphis, TN.

Cash Will Again Be King

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As this great suppression of the economy rolls along, people and businesses are becoming more inclined to hold on to their cash. The world is filled with uncertainty. When will it all end? When can we re-open? Will my employees come back? Will my customers come back? And so on and so on. How does a business person know what to plan or even begin to plan right now?

They do not know. So they wait. They wait and hold their cash.

To me this means that going forward, cash, as it has been in times past, will again be king. Heck, I might even go so far and say it will be emperor in the coming months and years. Thus, if you as an investor have access to cash, either your own or other people’s, you may be in a position to pick up some great real estate deals and build wealth.

Think about it. How do most investors acquire properties? Most seek out some type of institutional financing, either through a bank, credit union or a mortgage broker. While I have no problem with that, those sources of funds seem to be drying up and that trend may continue, just like they did in 2008/2009. I vividly remember 2009. One day everyone could get a loan, the next day, poof, all gone. So what happens when loans dry up? Prices fall and those that have access to cash can pick up some very good deals. Which is exactly what we did in 2009.

As an investor, you need to position yourself now to have access to cash. You need to seek out those that have the cash and cultivate a private landing relationship with them. Folks who have cash will be looking for places to invest as the banks may well trend towards negative interest rates and the stock market may seem too risky. Real estate investors can position therefore position themselves as one of the best and safest places to invest.

How?

First, do not judge a book by its cover. You never know who has money and you should treat everyone you meet like they are a potential future lender. No need to appear and sound desperate or oversell yourself. You are simply offering a product that the person with cash needs.

One of the best ways to find folks with cash is to start the conversation with a quick and succinct “elevator speech.” Think about what you would say to Warren Buffett if he happened to step on an elevator with you and asked “What you do?” Would you be ready to quickly describe what you do and take advantage of the opportunity? Would you say something along the lines of “I invest in real estate and offer 8% to 10% returns to those who invest with me. Interested in hearing more?” You see what I mean. Lots of people you interact with will ask what you do. Be ready with a quick speech and again never underestimate. If interested, they will continue the conversation.

Third, get yourself together financially and learn how to present yourself financially. Sure, some people may invest with you on your word alone but they are few and far between. Most are going to want to see qualifications and experience. Learn how to put those things together and present yourself well.

Finally, a word of caution on being too creative with other people’s money. You can get into a lot of red tape and trouble when you co-mingle funds from different people. To keep things simple I like to go with one lender per property. It just makes things clear and easy. Yes, you can co-mingle other people’s money but doing so starts to trip a lot of state and federal rules. Be careful as you can get yourself in hot water very quickly. Seek competent advice if you want to pool funds.

Going forward, I fear that the interventions by government and quasi-government agencies such as the Federal Reserve will get worse before they (if ever) get better. Demands to “do something” in terms of price controls regarding rents, mortgages and even food prices may lead to further interventions in the market and even further investor and entrepreneurial uncertainty. It is a vicious circle. But there will be folks looking for and wanting to put their cash in a safe place. Prepare yourself to be that safe place now by following the advice outlined above.

Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors.  Subscribe to Smarterlandlording here. Contact Kevin here.

Subscribe to Smarterlandlording and receive a Free Report: 21 Tenant Screening Red Flags

The Future Of Tenant Selection?

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As the suppression of the economy continues, the effects are going to become more wide ranging. The numbers of people negatively impacted will increase and the ripple effects are going to be felt for months if not years into the future. As landlords, we will see these ripple effects as we screen and select future tenants. A lot of folks will have faced hardship. Landlords will need to keep that in mind and perhaps rethink and reevaluate our tenant selection criteria as we all move forward. What worked well pre-suppression, may not after.

To see where I am coming from think about some of the criteria that you currently use to screen and select tenants. Qualifiers such as income, employment history and past rental performance have long been used to find tenants who will stay, pay and respect our properties. A lot of what makes up those qualifiers has been disrupted for many folks due to no fault of their own. Now, do not misunderstand me as I am not saying that we will or should have to give up those qualifiers. But I am saying that we may need to be a bit more flexible and perhaps even more generous with them in the future.

For example, many landlords use an income qualifier, such as requiring an income of three times the amount of the rent, to select tenants. In other words, if the rent is $1,000 per month than an income of at least $3,000 per month would be needed to rent the property. In the past, this qualifier has generally been easy to verify as there was usually a definite and traceable work history. Will this be so in the near future?

Another frequently used qualifier is a steady work history. Landlords like continuity. We want to see that our prospective tenants can not only afford the property, but have also been consistently working at the same job, or same type of job, for a consistent period of time. After all, we do not want them to move in and then quit or lose their job. Such a situation is not conducive towards consistent rent payments. Consistency has been found routinely in the past. Will that pattern continue?

Layoffs and furloughs have reached points not seen since the days of the great depression in the 1930s. Many of our future tenants are therefore going to have gaps in their employment history. They will have changed jobs, moved towards new careers, moved to new locations and otherwise changed what was once a clear and stable pattern.

Past incomes and work histories may become more difficult to verify as businesses close and never reopen. Tenants may have moved back to their parents home or in with friends to conserve limited funds while getting back on their feet. In sum, patterns will change, sometimes significantly, and we landlords are going to have to be cognizant of that going forward.

Going forward, the keys to qualifying tenants will remain the same as always, that is uncovering patterns of negative conduct. But I believe the current disruptions that we see in the economy will alter these past patterns into things that could be perceived as negative. We will see many more disrupted life patterns. And while once that may have led us to potentially reject these folks I think going forward how we view these patterns may need to change.

Most of the time however, when prospective tenants are truthful about their past situations on the front end, the patterns usually line up and we are able to put the pieces together. Going forward, we landlords need to be aware that the pieces in the tenant qualification puzzle are perhaps going to be a bit more jumbled and take a bit more time and effort to put together.

Have any thoughts on how the business of landlording may change as the economy opens back up? Please share with a comment.

Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors.  Subscribe to Smarterlandlording here. Contact Kevin here.

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