Posts Tagged ‘tenant screening’

Family Dinner Time, Your Phone Rings..Do You Take The Call?

Friday, July 23rd, 2010

After months of getting your investment property prepared, the first call comes right as you sit down with your family for dinner.  You are not sure who is calling, but from now on every unrecognized number may be a tenant…a source of revenue to offset the payment and expenses you have incurred.

You ask your family to excuse you as you slip off into another room.  Sure enough, it is somebody calling to find out about the three bedroom home for rent.  As your heart skips a beat, you describe all the personal touches, along with the not so personal touches.  All the fresh paint, and efficient windows, and the extra storage.  The caller sounds nice enough and now they ask if they can see the property!

“This is going to be easy” that little voice in your head tells you.  The caller says they are free after work tomorrow.  You say great, forgetting for the moment that tomorrow is Jimmy’s playoff soccer game.  Remember, you need to get this home rented.   After confirming the time, you hang up and realize that you do not have the caller’s number.  Maybe it is on caller ID…but no…they must have used a blocked number.  You return to dinner as the table is being cleared.

That night your wife reminds you about Jimmy’s soccer game tomorrow night.  Immediately, you realize the conflict and wonder how you can find these callers to reschedule.  That fails, so you hope your best buddy can show it to them tomorrow.  He has plans.  So, you are stuck.  Maybe a quick showing and race across town and still catch the second half.  

The thought hits you, maybe you really should have budgeted for help with this hobby.

The showing time arrives.  You bring two rental applications found on line..just in case.  Not sure how you will get the background checks or credit pulled but you  will figure that out once you have the applications completed. 

 At the agreed time…no prospective tenant.  Fifteen minutes late, they pull up in a 20 year old van falling apart and very dirty.  It is exhuming exhaust.  The prospects both grind out their cigarettes on the driveway as they get out.   Both possible tenants begin to unload children from the rear.  First one, then two, then three and finally four and five.  Lets see, 7 occupants in a 3 bedroom 1000 square foot home.   Your heart sinks a little.

You show off your pride and joy and learn that there are some mysterious circumstances about where these people currently live.  A reference to how nice it will be to actually live in a home instead of the van by one of the kids catches your attention.  At that moment, you decide to ask what they do for a living.   One is unemployed..the other just got a job after months of unemployment.  The job involves selling magazines and appears to not really be as an employee but as a contractor.

Of course, they love the house and request the applications.  You hand them out and ask them to fax or email them back as you really need to run.  They do not have fax or email and want to fill them out now.  You are screwed.  Jimmy scores the winning goal..you miss it.  You waste an hour with a family that you are not even sure how to screen to officially reject.

Why is it again that you are doing this yourself?

Mistakes you learn by and the next time you will be smarter.  No answering the phone during dinner…but what if?  More pre-screening on the phone…but what if they call during dinner and you are in a hurry?  At least get a phone number…that one you can do every time!  How many more summer evenings meeting tenants before you find one?  Then, won’t it be fun to increase the return on this hobby by being there to service the leaky faucets and the oven that does not work on Thanksgiving?  Oh, and collect late fees when rent is late.

Leasing and property management sure sounds like fun when you have a life and a career..doesn’t it?  Most people actually have to enjoy experiences like this to decide that they understand why management and leasing companies exist. 

Save yourself the headaches.

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Posted in Best Practices, Owners, Qualifications, Rent Preparation, Responsibilities, Screening, Selecting A Manager, Tenants, Uncategorized | No Comments »

Smoking Ain’t Allowed In School…

Tuesday, April 13th, 2010

I can’t help it.  This topic always makes me start thinking about the 70′s classic “Smoking In The Boys Room“.  For rental property owners, I think smoking is one of the most challenging issues.  I know many owners who have staunchly not allowed smokers to rent their properties but in today’s soft market are now reconsidering this policy. 

I see this as a three choice decision.

  • No Smokers
  • Smoking Only Allowed Outside
  • Smokers Allowed

My experience with “smoking only allowed outside” has not been great.  Smokers are famous for thinking they can actually walk around and smoke and nobody else notices.  Also, depending on the climate extremes, the nicotine habit is not something that allows a smoker to hold off when it is ten degrees below zero, raining like a monsoon, or just plain miserable outside.  So, an innocent exception becomes common place and the smoker thinks nobody can tell because they do not smell it.

The other negative is the risk of fire.  Reports of people smoking in bed, starting fires that destroy property and possibly lives, are common.  Smoking creates a new liability issue.  In researching this post I was surprized to learn that one in four people killed in home fires are not the smoker whose cigarette caused the fire!

Then the obvious.  The smell does not come out.  Once a property owner allows smokers, the only next tenant will be a smoker.  As a population, smokers are decreasing.  Have you made a choice in a soft market that actually will limit your potential tenants the next time around?

My best suggestion if you have a non-smoking property and feel that you are losing tenants by maintaining this position?   Go with option 2 permitting smoking outside the premises.  Then ask for a “smokers damage deposit.”  Simply, this deposit is for the extra cleaning that will be required if the smell of cigarette smoke is detected in the home.  I know, very subjective.  I would worry about subjectivity if smoking is detected inside.  An independent  “sniffer” could be the verification device.  The point is the deposit is enough that the smoker thinks long and hard about smoking inside when it is really nasty outside.  This might also keep the smoker in tune to make sure their friends do not smoke inside.  About $500 should be a nice sum and will provide reimbusement for a thorough cleaning and air ionization.

Start by making all properties non-smoking and then add this deposit only if you need to get a property occupied and feel allowing smokers will open up more possibilities.

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Posted in Liability, Screening | 1 Comment »

Get It Rented..Now!

Friday, March 19th, 2010

Anybody who has ever owned an investment property and looked at it empty has experienced the certain panic that ensues as another month of expenses are paid out of pocket.  The natural sense is to urgently accept the first tenant that comes along and can fog a mirror.  I understand that.  I also can’t express often enough, that when just any tenant is accepted often you’re trading one set of headaches for another.  Unfortunately, the bad tenant headaches are frequently more costly than letting the property sit vacant!

So, at Wilmoth our objective when leasing a vacant property is to properly screen prospective tenants so that we get your property leased to a properly qualified tenant.  There are actually five different points of contact that are a part of our screening process.  Some of these contacts result in objective information, some are more subjective.  It is through this process we ultimately can recommend whether or not to proceed with an applicant.  These points of contact include our first inquiry, the showing, the application, the approval, and the lease signing.  Yes..I said the approval and lease signing are a part of the screening process!  Up until the moment there is ink on a lease, certain types of behavior or incidents, or new information, would allow us to determine this is not the right tenant for your property.  So the screening process continues until the lease is executed.

During the inquiry we get basic information on the proposed tenant (PT).  If the PT has problems answering basic questions like why are they moving, or can they provide references, these are not good signs.  Good PT’s are anxious to answer questions thoroughly..they have nothing they wish to hide.

When we show the property we notice subjective things about the tenant.  Is their appearance well kept?  Their car? Do they have an attitude?  Are they critical of the property or process?  If it is a non-smoking property, do they smell of nicotine (smokers never realize they smell!).

The application process is where we hit both subjective and objective behaviors.  Do they willingly provide the application information promptly or is it like pulling teeth?  Of course, this is where we also gather objective information in order run credit, criminal, and background checks.  This objective information is provided within the privacy laws to the owner, along with our observations and any recomendation.

Letting a tenant know that their application is approved and asking them to schedule the lease signing is another screening hurdle.  Also, specifically identifying the amount of funds required and how it is to be delivered.  It is at the approval notice that we ask for the first month rent to hold the property.  These funds are to be presented in a cashiers check or cash within 48 hours of approval.

Finally, the execution of the lease is a surprizing final screening moment.  I have had tenants not show up, or show up several hours late,  for the appointment.  This is almost always a bad sign.  I have had tenants want to have a copy of the lease so their Uncle John, the Realtor, can review.  This does not have to mean you are going to have problems, but it is also almost always going to produce further questions or requests.  Completing this process in order to have an executed lease can provide indications of what type of tenant we are dealing with.  There are moments when it becomes clear that returning their deposit and getting the property back on the market is the best alternative.

So, prospective tenant screening is an ongoing process that we feel is very important to making sure we have a highly qualified tenant for your property.  The headaches avoided by methodically screening a PT are well worth the effort.

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Posted in Qualifications, Screening, Tenants | No Comments »

What To Do With Multiple Unrelated Tenants?

Tuesday, March 16th, 2010

It is not uncommon, particularly if the property you own is anywhere near a college or other center of higher learning, that you will receive an application from parties not related to each other.  It is also common in these situations to experience a change in mid-lease of the occupants.  It is important that rules for these situations are known and uniformly enforced.

One additional problem in these scenarios is that one or more proposed tenants will have limited or no credit or rental history.  For the purpose of this discussion, we are going to assume these are legal adults able to enter a contract…so turning to a parent for additional support is likely not an option.  Lets just leave it that you can always ask…but young adults in this situation may not be able to provide this type of additional support.

The purpose of this post is more to address what we do when there are multiple applicants and only one who really qualifies.  Actually, having one who qualifies is a great thing!  Nevertheless, I have heard property managers propose just having the qualified tenant co-sign for the unqualified.  I am not sure I understand this solution. 

When a group of unrelated tenants make application they are considered as a group.  If co-signors are required, they are co-signing for the entire terms of the lease..not just a portion as represented by their respective association.  Therefore, the burden of strengthening the application to work within our normal parameters (income, credit, rental history) is on the group.  A proposed tenant with an eviction might slip through and be approved based on a really strong overall group.  The entire group of tenants and co-signors are equally considered for approval.  They are all obligated for the entire amount of the lease. 

As a property manager or owner we do not want to be chasing multiple parties for incremental parts of the lease obligation.  The parties to the lease all need to understand they are individually obligating themselves for the entire contract.  One for all…all for one.

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Posted in Qualifications, Tenants | No Comments »

Case Study-Tenant Abandons Home Prior To Lease Expiration

Monday, February 22nd, 2010

I wanted to present a real life case that we just completed.  The purpose of this exercise is to give owners, considering renting their homes, a realistic idea of the risk.  This may seem counter-intuitive (aren’t we supposed to be talking you into allowing us to manage and rent your home?) but our principles have always centered on educating our clients so that they are making the best business decisions.   The sum of this case is to present how little money ultimately will be collected when a tenant leaves early.

I am also going to limit this case to the level of detail necessary in order to provide understanding, without violating the privacy of the parties involved.

Last year, one of our properties under management was evacuated 10 months prior to the lease expiration.  Upon discovery, it was also determined that the home had sustained damages of several thousand dollars.   Upon a complete analysis of the damages and rent not collected, we concluded a loss of $24,500.

In working with the owner we hired a local attorney to file suit against the former tenants.  We were able to verify one of their employment had not changed which gave us what we needed to file suit.  We also immediately began to repair the property and attempt to re-lease it.  In this particular situation, the attorney advised us that the actual dollars to ask for in a suit would be adjusted based on when the property was re-leased and if there was any loss of rent by accepting a lower lease.

We were successful in re-leasing within 60 days at a slightly lower rate.  The owner did not receive rent for a period of 90 days due to the lack of collection in the first month that alerted us to the vacate.  When the final calculations were completed, we believed the owner was due $8500 in lost rent and repairs.  The faster you can get the property re-leased the more the potential loss is managed ($24,500 versus $8500).

We had no trouble obtaining a judgement for $8500.  The tenant actually showed up in court and tried to pursue the logic that a small non-maintenance item had not been addressed timely therefore negating the lease.  Fortunately, in Indiana an argument like this holds no weight.

Now comes the fun part.  How do you collect a judgement for $8500?  Most collection agencies take a fee of 30-40%.  The attorney pursued the collection at a fee of 30%.  This is where the owner has a decision.  Does the owner try to settle the judgement in a lump sum payment or allow for a elongated collection period?  The issue in my experience is that people with judgements, usually have more than one.  It is often only a matter of time before they visit bankruptcy court and have the judgements dismissed under a Chapter 7 bankruptcy.  Therefore, I encourage owners, to accept a lump sum settlement and move forward.

These owners agreed with my advise and ended up accepting a settlement of about 50% of the judgement.  Somehow, the tenants had this amount of cash and paid the judgement.  After the attorney collected 30%, the owner received about $3000 on a $8500 loss.

These tenants were screened and I felt we did all we could to avoid what happened.  Turns out they had some personal problems that made living in the same home impossible.  Divorce can’t be planned for.  We do not have, nor are we allowed to ask,  a screening question for “how secure is your marriage”, or “do you have any impending health problems”.  We just have to do the best to mitigate these outcomes.  Unfortunately, the best we can do almost always still involves a loss for the owners.  The management company loses also in lack of revenue and time managing the re-lease and settlement.  Our job is to do the best we can advising the owner and mitigating this loss.   If this happens to you, and you end up with 40 cents on the dollar of recovery, this case illustrates that is a pretty good recovery.   Most tenants have no ability to settle and will file bankruptcy to get rid of the judgement.  Whatever the final outcome,  let the accountant figure out how to factor the loss into your taxes.

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Posted in Risk | No Comments »

How We Screen A Tenant

Monday, January 11th, 2010

When we are renting a property it is always exciting to be told by a potential tenant that they wish to complete an application for rent.  The application process is a most important step to determining whether to enter a lease with a potential tenant. 

It provides us with all kinds of information on the applicant including all of their contact information and previous employment and residence history.

It also provides us an approval to complete a thorough background check.  This check will include previous rental background verifications, employment verifications, criminal background check, and credit information.

We require a background check for each and every adult (18 and older) resident of a property.  So, a married couple with a 19 year old son living with them will require three checks completed.  I hear all the time the complaint that the 19 year old son is a student and should not have to have the check completed.  Last I checked a lot of alleged sex offenders are aged 18-25 and also are calling themselves students.  It is a risk just not worth ignoring.

As of this date, we charge $50 for one application, and $25 for each additonal application.  So the above family will pay a $100 application fee.  This covers our cost for reviewing the application and paying the professional background check company for compiling the information we require on the applicants.  If a potential tenant has difficulty with making this application fee, then I guess it is safe to say it is good we learned that before entering a contract!

Submitting to a owner a thorough background check on a potential tenant is an important part of the rental process.  We have actually been interviewed and cleared by a national company to be eligible to obtain this type of detailed information.  It is one of the things you lose when not selecting a professional property management company to handle your leases.

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Posted in Uncategorized | 1 Comment »