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Tenant Referrals

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How to best provide tenant referralsIf you are in the landlording business long enough, you will eventually be asked to provide a referral for a previous tenant.  Referrals are a great tenant screening tool that should be in every landlord’s rental standards toolbox.  On the surface, providing tenant referrals may seem simple enough, but you should exercise some caution when doing so.  What is the best way to respond when asked for tenant referrals?

Referral Requests Come In All Sizes

We receive many different types of tenant referral requests.  Some are just a quick phone call.  Some want to have a long conversation. Others will fax or e-mail a long form they want us to fill out.  Every landlord seems to have a different way of asking for tenant referrals.

But no matter how different landlords ask, we believe in keeping things simple and to the point.  Why?  Landlords have to remember that we do live in a somewhat litigious society.  The tenant referral we give could potentially make or break someone’s application for housing.  If someone feels they were wrongly denied housing, you could easily be brought into that conflict.

Keep Referrals Short And Consistent

With that in mind, it is best to keep your referrals short, succinct and consistent.  There is no need to have a long, drawn out conversation. Nor is there a need to go into too much detail.  There is however a need to keep things consistent and focused.

When a landlord calls you asking for a referral, We believe the best strategy is to use one of the following phrases. “Yes, I would rent to that tenant again,” or “No, I would not rent to that tenant again.”  After all, what more needs to be said.

If you get a fax or e-mail referral form (Yes some landlords still use a fax because it is more difficult to falsify.), examine the questions it is asking you.  Are they related to a tenant’s ability to pay, stay and respect the property?  Are they asking only about rental payments and damages caused?  If so, go ahead and answer them.  If not, be careful as you might be treading into ambiguous territory.

Focus Tenant Referrals On What Matters

The key is to remember to keep things focused on the tenant’s ability to pay, stay and respect property.  Going beyond that leads to trouble and becomes inconsistent.

How do you handle tenant referral requests?  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.  Contact Kevin here.

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How To Confirm Income

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One often used rental standard is an income requirement. Requiring a prospective tenant to show that they have adequate income is a smart way to qualify them. Using this standard requires landlords to learn how to confirm income. Because just being told something on your application does not make it true.  How can you confirm income?

The Income Requirement Rental Standard

The actual rental standard can vary, but it is often stated as some multiple of the monthly rent.  For example, a landlord may require qualified tenants to have three times the rental amount in income.  Thus, if a rental unit is offered at $1,000 per month, a potential tenant would have to demonstrate $3,000 per month in income.

Why would a landlord have such a standard?  An Income requirement standard helps to ensure that potential tenants can actually afford the rental unit and will pay the rent. Someone without adequate income might be forced into a decision of either paying rent, eating or keeping the heat on.  We landlords want to avoid tenants having to make those decisions as the rent payment often gets placed on the back burner.

Income Has To Be Verifiable

Unfortunately, landlords should not just believe what potential tenants tell us.  We have to confirm, or verify, what we are told because people lie.  Prospective tenants also know that smarter landlords will try to verify their income.  This fact can cause some of them to get pretty creative at deception.  They might even be a professional at duping naive landlords.

Confirming And Verifying Income

The first thing you as the landlord should do is ask for a verifiable income amount on your application.  Understand that income can be had from many different sources, such as a job, alimony, disability benefits or drug dealing.  Three of these are verifiable, one is likely not.  All can be faked however and those falsehoods are what we must uncover.

How?

If they have a job, one way is to call the employer.  We definitely do that, but not in the way the tenant thinks we will.  On our application, we ask for their employment contact information.  We do not however use the contact phone number provided by the applicant.  Instead we Google the employer and call the number that shows up on the search, then get directed to the person or department we need.  In this way we bypass the “Vandalay Industries” trick.  We have had more than one applicant try and use this technique in the past.

Secondly, look at the paper trail.  Any verifiable source of income will have a paper trail  These might be check stubs, bank statements, even tax returns could be used.  But guess what?  These can also be faked.  There are websites out there that sell fake check stubs for example.  The best way around that is to become a detective.

Legwork Pays Off

Most times after a little legwork on your part, things simply will not add up.  Addresses will not match.  Phone numbers will not be connected and dates will be off.  When you find these inconsistencies, you need to ask for more information.  If no clarity is provided, then you can reject the application, since income could not be confirmed.

This may seem like a lengthy process, and it can be.  But it is quite worth it as you just may save yourself from an eviction later on.

Have a good story about a prospective tenant trying to fake their income?  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.  Contact Kevin here.

 

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Security Deposits

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Security deposits are a necessity in the landlording business. They are used to incentivize tenants to give our property back in the same manner it was provided to them. Over the years we have learned some things to keep security deposits feasible and practical.  Here is some Advice From Experience on security deposits.

1.  Know Your Local Laws – Local laws may dictate how much you can charge for security deposits.  Many states have no maximum.  But others may only allow a month or two of rent.  Some local laws will determine how security deposits are held and others may even require that interest be paid.  A decent guide to state security deposit laws can be found here.

2.  The Market Will Determine Rates – If there is no law in your area setting security deposit maximums, then your competition is going to do it for you.  The trick is to know exactly who you are competing with.  Are you high end or lower end?  Do you offer a lot of amenities or not? Keeping tabs on what your competition is offering is the a key part of this business.

3.  You Can Charge What You Want, But… – If you charge too much, you will price yourself out of the market and lose potentially great tenants to your competition.  On the other hand, if you charge too little, you may not create enough incentive for a tenant to keep things neat, clean and in working order.  There is a balance that needs to be found.  What that balance is for you and your particular situation will take a bit of research and most likely some trial and error as well.

4.  Be Careful Charging Differing Amounts – Avoiding illegal discrimination also has to be one of your top priorities when you are a landlord, and charging differing amounts for security deposits can look awfully suspicious to some.  Yes, you can do it sometimes and sometimes you should.  But perhaps keep the differences limited to different properties.  Or perhaps use different amounts if the tenant has a pet.  There are of course other situations where you might want to cover yourself with additional security deposit amounts.  Just tread carefully.

5.  Do Not Charge The Same Amount As Your Rent – Doing so may equate the rent with the security deposit in the tenant’s mind. You as the landlord want those two items to be thought of as separate and distinct. The last thing you need is a tenant not paying that last month of rent before they move out thinking the security deposit will cover it.  You do not want to have to chase a former tenant down to recover things that should have been covered by the security deposit.

Security deposits are often overlooked as a very routine part of the business.  They should however be carefully considered. The incentives and cushions security deposits provide are an important part of being a successful landlord.

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

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

The SmarterLandlording Podcast – Advice From Experience To New Real Estate Investors

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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

Books You Should Read.

How I Turned $1,000 into $5,000,000 in Real Estate in My Spare Time by William Nickerson

Nothing Down for the  2000’s by Robert Allen

Multiple Streams of Income by Robert Allen

Links You Should Check Out

Memphis Investors Group

Want To Contact Us?

Richard has tons of advice from experience and he is more than willing to lend you a hand.

Connect with him by calling 901-753-3491.

You can find me at my blog, Smarterlandlording.com

And you can like my Facebook page too

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.

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Unintended Discrimination

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Landlording can at times be like walking in a minefield.  One small, unintended misstep and boom!  It blows up in your face.  No one intends to step on a landmine, and the majority of landlords I know do not intend to discriminate.  But small missteps can lead to unintended discrimination and potential legal trouble.  Here is how.

Most People Want To Be Helpful

Most people, by their basic human nature, want to be helpful towards others.  Many will hold a door, give directions when asked and offer helpful advice.  Being helpful is one way we all function together in society.  Being nice to each other helps us all get along.  Unfortunately, anti-discrimination laws can cause landlords to trip and step on that proverbial mine if they are not too careful with their “helpful” advice.  And being accused of discrimination is a serious landmine.

To help explain, let’s pretend that you have made it past that first phone call with a prospective tenant.   They did some checking and have called you back to further discuss what you have available.  What are some things you might say that could lead to inadvertent and unintentional discrimination charge?

This One Has More Bedrooms

Your prospective tenant might tell you that she has a child or two that will be living with her, or she may mention that her elderly father or mother may be moving in.  While looking at a one bedroom apartment, you begin to suggest two and three bedroom properties you have available. You suggest them because you honestly believe they might be a better fit.  Unfortunately, that advice may be misconstrued as attempting to drive someone away or towards a specific property because they have children or of their familial status.

This Apartment Might Be Quieter

You might think that by suggesting an apartment at the end of the hall, or on the top floor, or in the back may be helpful to your prospective tenant.  And it could be.  But, it could also be interpreted in a negative manner.  They might think that you are trying to keep them and their kids out of the way or out of sight.

The Units I Have In This Particular Neighborhood Might Be More Too Your Liking

You might be completely right.  Your tenant may favor a unit in a particular neighborhood.  Again however such a suggestion can easily be misinterpreted.   It may appear to your prospective tenant that you are trying to steer them away or towards a particular area.  “Why would they want to steer me towards that particular area?” they might ask themselves.  They might think that it is because they are black or lower income or have kids.

This Apartment May Be Closer To Your Price Range

Yes, one of the screening questions you should ask on that first call is about income, but offering advice or suggestions could be misconstrued as steering someone towards a location, especially if you have multiple units in multiple locations.  We all know that location, location, location affects the rental price.  Thus rents will vary depending on location.  Again do not appear that you are trying to steer.

Keep Your Advice To Yourself

As I said in the intro, most people just want to be helpful.  Most landlords are the same way.  They often have the best of intentions.   They may really believe that a particular unit in a particular building or a particular location is best for their prospective tenant.  But good intentions can have negative consequences.

Landlords should avoid making these types of suggestions to prospective tenants.  Instead, tell them about every property you have available.  Then, let them know about your rental standards and criteria and leave it at that.  Let them then decide on their own, which properties are best for them.  Then let them apply.  It seems sort of wrong not to be able to make informed suggestions to help someone, but that is just the world we live in today.  One person’s helpful suggestion, can and will be interpreted as unintended discrimination.

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

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

 

Rental Standards

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Once you have gotten past that first phone call from a prospective tenant, you need to then think about how you will determine whether or not that person will make an acceptable tenant.  To make that determination, you need rental standards that measure a potential tenant’s qualifications.  What are some rental standards that a smarter landlord should and should not use?

Landlords Have Got to Have Their Standards, But…

There are some standards that you cannot and should not use.  Using them can get you in a lot of hot water.  Avoid using any sort of rental standards that are based upon a person’s physical or cultural characteristics.  Using such standards is wrong and often illegal.

What are these types of standards?   Standards that are based upon a person’s race, sex, religion, national origin, children, marital status, sexual orientation and disability are a few.  The fact that someone is black, or female, or unmarried or has three kids does not have any bearing on that person’s ability to be a good tenant.  Therefore rental standards that are based upon such criteria just do not make good policy and can end up costing you expensive fines and legal fees.

Rental Standards to Use

Landlords need to focus their rental standards on criteria that will actually affect their landlording business.  Such standards that do not limit your applicant base and reflect a person’s ability to pay, stay and respect your property.  These standards are not set in stone, and can be tweaked and refined to reflect your business and market conditions.  Here are some suggestions.

Income

If a potential tenant does not make any money, how are they going to pay you rent?  Going further, it is not just about making money, but about making enough money to afford your property.  The thing to understand is that people not only need housing, but that they also need to eat, stay warm and have a bit of fun.  All of that costs money.  You as a landlord do not want a tenant that has to make a decision between food and rent.  So you need to verify that they have enough income to afford both your rent and other necessities.  It does not matter where their income comes from (unless it is from an illegal source), just that they have it.  Making two to three times the amount of your rent is often a good standard to use.  For example, if your rent is $1,000 per month, your rental standard might be a gross income of $2,000 to $3,000 per month.

Rental History

Does your potential tenant have a rental history? If so, what does it show?  Did they pay their rent in full and on time?  How often were they late with payments?  Do they move every year or do they tend to stay put for a while?  We like to see stability and promptness.  Of course what exactly “stability and promptness” means to you will vary depending on your market and business style.  A college town may tend to have a lot of turnover and thus such a standard will be different from mine.  Something along the lines of one late payment every two years and not moving every year may work for you.

Evictions

This is an item you absolutely must check.  Has the person applying ever been evicted?  A recent eviction is often a standard for immediate disqualification.  But an older one with a demonstrated and improving rental history can be different.  Again the exact standard will vary depending on your business and market.

Criminal History

Violent offenders are out.  If an applicant has been in jail for a violent offense, then the answer from us is no thanks.  Not all criminal convictions are the same however and you may not want to give them all equal weight.  Does possession of a few joints equal spousal abuse?  It is up to you.  You can come up with your own standards here as again they will vary depending on the market you serve.

Attitude and Appearance

Attitude means a lot.  Being rude and disrespectful often means instant disqualification.  If they are going to be rude to you now, imagine what they will be like once they move in.  Again, no thanks.  Appearance counts as well.  A car filled with trash or people with food spilled all over them are major red flags.  That filth will move in with them and eventually become your problem.  Define standards regarding rudeness, lateness and cleanliness.

Advice From Experience

The above is not an exhaustive list.  You as the landlord can add additional standards, such as work history, as you see fit.  The key again is to use standards that will demonstrate the ability of a potential tenant to pay, stay and respect your property.  Whatever rental standards you decide to use, write them down and keep them handy.  Every once in a while someone from the government may want to see them.  You will need to be able to show them.  Want more great advice like this?  Order the book, Advice From Experience today!

What rental standards have you used?  Please share with your comments.

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Advice From Experience To New Real Estate Investors

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Advice from experience is what you look for when you come to Smarterlandlording.com.  You want to figure out how to get started as a real estate investor.  You want to learn how to move forward and find ways around those road blocks that get thrown in your landlording path.

To help you do just that I am excited to say that I have published my first book, Advice From Experience To New Real Estate Investors.  This book is full of knowledge gained from my 15 years of experience as a landlord and real estate investor.

A small excerpt from the Chapter, Even a Newbie Can Compete with Experienced Investors, will help demonstrate.

There are several reasons why you can compete with more experienced real estate investors.

For one, there are just too many properties out there.  All of these properties mean that there is too much potential for developing real estate deals.  In Memphis, TN, alone (where I live and work) there are over 300,000 individual properties.  Now multiply that across the country. Multiply that across the world.  In all of that you will find one property that will work for you.

Second, all of these properties just lead to too many different deals.  There is no way any one investor, group of investors, hedge fund or whatever can get them all.  If they try, market forces will often push them back down, opening up a door for people like you.

Third, investors get tied up with their existing projects and therefore cannot have their eye on or get every potential property and every potential deal.  An investor may, to give an example, purchase a small multi-family building that needs a significant rehab.  That purchase and rehab will likely take that investor out of the picture for a while as they get the property fixed up, rented, and cash flowing.  They may not have the resources to acquire and rehab another property at the same time.  This situation will create an opportunity for someone else.

Fourth, investors get in or get out of the market all the time for a whole host of other reasons, again creating opportunity for you and other investors.  Investors will move, get divorced, retire, get sick, or even go bust.  No one gets out of this business alive and gets to keep things forever.  A morbid thought for sure but all of these things create a fluid market and opportunities for the newbie investor.

Finally, other investors will make mistakes.  They might have failed to learn the lesson about positive cash flow.  They may take on a project they had no business taking on, or they may misread the market.  I hate to hear about these stories and unfortunately have had some good friends go under.  The fact remains that the world keeps turning and new opportunities are made, because people make mistakes every day.

Want a bit more?

OK.

Here is some Advice from Experience on how to avoid becoming a target of fraud.

Fraud is everywhere and real estate investors can be tempting targets. There is a lot of money being passed around in real estate, thus the impulse to defraud can be great.  As real estate investors we must learn and realize that we cannot abdicate our responsibility to keep watch over our own businesses.  Unfortunately, that means we have to keep tabs on everyone.  Even your attorney could be doing something underhanded as demonstrated by the above story.  We simply must know what is happening and where our money is going.  Failing to do so just sets you up to get scammed.

I hate to sound so cynical, but it is what it is.

There are concrete things that you can do to make yourself and your business a more difficult target. You can reduce your fraud risk and help ensure that you keep your hard earned money.

How?

Understand What You Are Getting Into – An ignorant and uninformed person is the easiest to defraud.  Understanding the deal that you are getting into is a key factor to avoid fraud.  Remember that in any real estate deal, the numbers do not lie.  The numbers have to be able to be justified.  If things cannot be justified then remember the old adage, if it seems too good to be true, than it probably is.

Accurate Bookkeeping Is Essential – To know if you have been the victim of fraud you have to know what you had in the first place.  How can you know if you have been defrauded if you have no idea how much you are supposed to have or where it is supposed to be?  Real estate investors have to keep accurate records.  If you use an accountant or bookkeeper, reconcile the work that they are doing every few weeks or so.  Do not abdicate your responsibility to your bookkeeper or accountant.  You have to stay on top of them.

Advice From Experience To New Real Estate Investors is packed with great real estate investing advice.

What can new and experienced investors learn by reading my book?

  • Why real estate investing is such a good tool to build wealth.
  • What you need to understand and know as a new real estate investor.
  • Tips on finding, negotiating and closing on real estate deals.
  • Things you can do to get your investing business running smoothly.
  • What you can expect going forward as a full-time real estate investor.
  • Much, much more!

If you are like me and you want more out of life along more control over your time and future then you should order this book as it will help you achieve those goals.  I have learned a lot over the years about landlording and real estate investing and I want to help you have the same success I have been fortunate to have.

Order your copy today!  Available in both e-book and  paperback formats.

 

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Rents Are Up, But…

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So is everything else.

Rents are still going up according to Yardi.  But so is everything else.  Have you priced a new HVAC system or roofing materials lately?  They are all up as well.

Are we landlords making more money with these increased rents?  Perhaps a bit.  But with the costs of everything else increasing along with the rent, I’m not so sure.

What is your experience?  Let us know with a comment.

 

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Four Questions For That First Call

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Congrats!  People are calling to rent your property.  You have advertised well.  Now the hard part begins, selecting a tenant.  The first phone call from a potential tenant can be awkward for some, but we landlords need to remember that it is a very important call.  It can save us a lot of hassle.  How?  Simply by using these four questions for that first call.

When Are You Looking To Move?

This question can be a real time saver for you.  Believe it or not, some folks begin looking for a new place 4, 5 even 6 months before their current lease expires. Sure, they could have a good reason such a hot market or a job transfer, but they often also expect you to hold that unit for them until, for free!  Are you willing to lose 3 or 4 months worth of rent?  I’m not either so we often ask them to check back closer to their move date.

What Is Your Income?

You should get this question out of the way early on.  If a prospective tenant cannot afford your unit, than both of you are wasting your time.  There are many ways to ask this question.  Perhaps the best way is something along these lines.  “That unit rents for $1,000 per month.  We require income to be three times the monthly rent.  Is that within your income range?”

How Long Have You Been At Your Current Job?

The goal of every landlord must be finding tenants who pay, stay and respect your property.  When asking about work history, you are asking about their stability.  Will they stay?  Ideally, you would like someone who has been at their current job for several years.  Be cautious about someone who job hops a lot.  They may just hop out of your place as soon as they can.

How Long Have You Been At Your Current Residence?

Again, the goal here is stability.  The last thing you want as a landlord is lots of tenant turnover.  Tenant turnover is a cash flow killer.  Ask your first time caller how long they have lived at their current residence.  Then ask how long they lived at their previous residence.  If you keep getting answers of a year or less gently let them know that you cannot do business with them as they seem to move too much.  Trust me; the likelihood that they leave you behind in a year is very high.

So there you have it.  Four questions to ask on that first phone call.  A final word of caution is necessary however.  To avoid appearing discriminatory, ask everyone who calls, the same questions, all the time, every time.  There are fair housing testers out there and you just never know who is on the other end of the line.  To avoid any issues, be consistent with your questions.

What do you like to ask first time callers?  Please share with a comment.

 

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