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“All people are nice,” you may say. And I would respond, “That may be true, but not all nice people are great tenants.” Great tenants are those who pay rent on time every month, keep their rental clean, report needed repairs in a timely fashion, are good neighbors, parent well (kids and animals) and follow the rules. If all people who rented did this, being a landlord or property manager would be a breeze.
The truth is that property management is not easy. The person in this role is always dealing with personalities of people. For those who manage property for others, they are constantly balancing the expectations of the owner of the properties with the needs of the tenants while also juggling the tasks of the business. Picking even one area to concentrate on improving to make management easier can significantly enhance the quality of the property manager’s experience.
Let’s start with how to get great tenants.
We started with the premise is that all people are nice. Sure, but there may be qualities that some nice people have that make them better tenants. One of those qualities is that they are serious about paying bills on time. Before you relinquish the key to a valuable property, you need to know that you can expect them to pay rent on time.
Tenant screening can give you this valuable information. It is not so much the credit score that tells the story as it is the amount of credit they have out and the payment history on their debt. Check the amount of credit the applicant has out. Check that against the payments they are expected to make in addition to the rent you will expect. The total should be less than 50% of their total shown as net pay on a pay stub from their employer. When considering a tenant’s ability to pay rent when they have no debt, the rent should not be more than 33% of their income after taxes and withholding.
Why are you responsible for doing this kind of analysis? Because many times, tenants are not able to do this for themselves. They may be in love with the place and would do anything to just be able to move in. So you will have to be the moderator and qualify the tenant’s income with respect to their ability to pay rent every month. They could get into financial trouble if you rent to them knowing that their debt and rent will be over 50% of their income. You are actually doing the applicant a favor when you do this calculation, because you will save them from getting into a contract that may put them over their head in debt they cannot support.
There are several other things you should always do when considering an application for rent. First, be sure to verify the employment of the applicant. Call the employer, and find out how long the person has been employed and if the employment is going to continue. Usually the employer will not tell you how much the person earns, but if you have a pay stub, you can verify that the stub shows the correct amounts. Next, call the applicant’s previous landlord, and ask about the tenancy.
There are nice people who use friends to act as previous landlords, especially if they had a hard time at the previous rental. If you collect some detailed information about the previous rental from the tenant, like the amount of security deposit and other things that only a landlord would know, you can tell if the person you speak to is a real landlord reference. If you find the person is not really the landlord, that will tell you something more about the trustworthiness of the applicant. The landlord may or may not give you a good recommendation regarding this applicant. But now you have information from several sources.
When I am doing an evaluation, I also order eviction history with the credit and criminal history. This eviction report may be incomplete because many counties do not report eviction history to credit bureaus, but you can always go directly to the courthouse of that county and see if there are any records of evictions for this applicant in the past. No evictions? That is a good thing.
At this point, you might call the applicant and ask them to come to the office to discuss the lease. I always recommend going out to meet the applicant at the car. There, you can see what condition the car is in. Is it clean and organized inside, or are there enough leftover food scraps and half-empty juice bottles to feed a small dog for a week? The reason for this last piece of evidence is that if their car looks like this, their home will likely be worse. With this information, you have insight into how they will care for your rental.
Now you can make your decision. I have learned that is better to be safe than sorry. So, for all your properties, use these tested methods to qualify your tenants.