SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

Tenant Screening

Every Landlord’s Nightmare!

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The following story describes every landlord’s nightmare.  You have to read it to believe it.

Smarter Landlords screen their tenants and verify everything they say.  Save yourself the time, aggravation, frustration and money, screen your tenants or risk something similar happening to you.

 

 

By Barry Carter/Star-Ledger

He looks like an attorney in his crisp gray suit, white shirt and red patterned tie.

Not only does he dress the part, Mark Newton knows the law. In fact, an exhaustive Star-Ledger review of his court filings shows that for at least 19 years he has made Superior, chancery, federal and municipal courtrooms his virtual offices, representing himself in hundreds of court battles — though he has no license to practice law.

His specialty? Avoiding eviction. And he is relentlessly effective.

Read  the rest of the article here.

 

H/T to Josh at Biggerpockets.com

Tenant Selection Criteria – What to Use?

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Use the right criteria to say no!

Tenant selection is perhaps the most important thing a landlord can do.  You have heard the saying “One bad apple spoils the bunch.”  Well one bad tenant spoils a landlord’s life.  Bad tenants will not pay you, will destroy your property and will generally be a thorn in your side and to your other tenants.

So you want to weed those bad tenants out before they get into your property.  But, you must be careful with your selection in order to avoid a potential discriminatory claim.  To do that you need to establish a set of criteria that you use to rank all applicants.  You want to find tenants who can pay, who will pay and who will take care of your property.

What are those criteria?  Let’s first discuss what they cannot be.  You cannot base your tenant selection on the eight federally protected classes.  These are: race, color, national origin, religion, sex, disability, familial status.  That means you cannot disqualify someone because they are black, or Jewish or female or because there is a child involved.  These criteria in no way affect anyone’s ability to be a potential renter, so do not even think of using these criteria.  It is just wrong and it will get you in some serious trouble.

So, back to the question, what criteria can you use to select your tenants?  Frankly, it could be almost anything except those criteria listed above.  But here are some of the more common items used:

  • Enough income to cover rent, utilities and living expenses.  Many will use a standard of a monthly income equal to three times the amount of rent.
  • A steady work history with good references.
  • Decent references from past landlords.
  • A decent credit score.
  • A history of prompt bill payment.
  • No recent bankruptcy or evictions (last 5 to 7 years).
  • Criminal or arrest history.

Using the above criteria, you should be able to determine fairly well if an applicant can pay the rent, will pay the rent and if they will take care of your property.  Is it 100% effective?  No, nothing is when dealing with people but it does work pretty well.

Some will include other criteria based upon their own personal experiences.  I know of landlords who will not rent to lawyers.  Lawyers like to sue.  They are not a protected class and you can discriminate against lawyers as long as you are consistent.  I know another who will not rent to people with motorcycles.  Their experience has been that the motorcycle will end up in the living room dripping oil come winter.

You will most likely need to tailor your criteria to your particular circumstances.  Depending on your location, your tenant pool may not have decent credit scores, or bankruptcy may be very common.  Whatever criteria you do decide upon, be sure to write them down and be sure to evaluate everyone against those written criteria.  Keep a record of your evaluation process.  If someone ever does come back on your screaming discrimination, you will have records showing otherwise.

 

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What’s In Your Rental Application?

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The rental application is one of the most important documents that a landlord uses.  It is the tool that is used to verify everything that a potential tenant has told us.  The application should give you the authority to check an applicant’s credit, criminal, work and housing history.  A good application for should do three things:

  • Positively identify the applicant (yes, some do lie here.).
  • Determine if the applicant can afford the rental unit.
  • Provide enough information so you can rank the applicant according to your application standards.

You application form needs to be clear, easy to read, and easy to complete.  At a minimum it should ask for the following:

  • Legal Name
  • Current Address
  • Social Security Number
  • Phone and E-mail
  • Addresses for previous 5 years
  • Employment Information
  • Income Information
  • If the applicant has ever been evicted
  • If the applicant has ever been convicted of a crime
  • If the applicant has ever filed bankruptcy
  • If the applicant has pets
  • Who will be living with applicant (adults and children)
  • Where they bank
  • Credit references
  • Emergency Contacts
  • A space for comments and explanations
  • Authorization to check references, call employers and pull a credit report.
  • A place for their signature.

All of this information should be enough for you to determine if the prospective tenant can afford the property, meet your rental criteria and will be a decent tenant.

Keep it simple and straightforward.  Also be sure to keep your application form neutral in regards to the 8 federally protected classes, which are race, religion, color, national origin, age, sex, disability and familial status.  Determining your applicant’s ability based on any of these criteria is just plain wrong and will land you in hot water.

Next time I will take a look at some criteria you can use to rank your applicants.   Untill then, have a happy new year!

Cash for Keys

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Tenant screening is one of the most important things that a landlord can do.  You want to make sure that you selected people to live in your properties that can pay, will pay, will pay on time and will not tear up the place and cause trouble.  However, no matter how well you screen your tenants, every once in a while you will have a tenant that cannot pay.

Perhaps the tenant lost their job, or had some other unfortunate circumstance happen.  Whatever the reason, when you have a non-paying tenant you want to get them moved out and a good paying tenant moved in as soon as possible.  It is not that you are a mean person, but you have to eat as well and the bank really does not care that the tenant has stopped paying you, the mortgage payment is still due.

The first thing that most people think of when they have a non-paying tenant is the eviction process.  Yes, you can go that route, but it can be expensive, time consuming and just downright nasty.  It creates ill feelings on both sides.  Plus, crafty lawyers will be sending your tenants advertisements telling them how they can stop that eviction with a bankruptcy (and they can for several months!)

Rather than eviction, I prefer to use the cash for keys method.  What is cash for keys?  It is simple really.  You pay the tenant to move out and hand you the keys.

Why would anyone do that?  Shouldn’t the tenant be paying you the back rent?  After all, they owe you money.  Yes, that is correct, but by the time they get to the point where they cannot pay the rent they have likely exhausted their resources.  They may want to move, but do not have the money to do so.

So it seems to me that it is better to pay them a little bit of money, maybe even as little as $50 or even as much as $300 to get them to move their stuff out and give you the keys.  By using the cash for keys process you have control of the incentives.  You can even get the tenant to clean the place before they leave so they can get their money.  Evictions use the threat of the courts and we all know cash today is much more effective than the threat of a judge sometime down the road.

Plus, when using the eviction process you are going to have to pay a lawyer.  How much will that cost?  $300, $400?  Did you figure in the filing fees, process server fees, writ fees and set out crew fees as well?  Now which one makes more sense?

I know it can be hard to swallow giving money to someone who may owe you a substantial sum.  But the best thing for everyone is for the tenant to move on and for you to get possession of your property back so you can get it re-rented as quickly as possible.

One last thing, before you had them the cash for their keys, be sure to get them to sign a release to the rights of possession.  Otherwise you could be in for more headaches down the road.

Podcast – Landlording 101

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Check out my latest podcast where myself, Jo Garner and Holly Swogger, President of the Memphis Investors Group, discuss landlording basics such as leases, screening tenants, security deposits and more.  We also discuss how you can increase your cash flow by using some of the many mortgage options available to landlords for their rental properties.  We have never seen rates this low.  If you can refinance now is the time to do it.  Put some more cash in your pocket today!