Good or bad tenants will make or break your real estate investment and the return you see from it. This is why most professional property managers (like us) have such hard and fast rules about who we will or will not approve. When prospective tenants are declined by our office for having poor credit, aggressive breed dogs, eviction history or criminal backgrounds, do you know where they go next? To Craigslist to find an individual home owner to rent from. This is because individuals who rent out their homes and self manage are often too inexperienced to know what ‘not to do’; quite frankly they rely too heavily on instinct. What I’ve learned in my 10 years of managing rental property is that when you approve solely on your instincts, no matter how good you feel they are, you will get burned – I had to learn this the hard away (several times). If you are one of those people, I hope that this article helps you in your future success as a landlord. Also keep in mind that approving on your instincts CAN create the impression of discrimination against a protected class even if discrimination did not take place.
Now – can you still get burned when relying on the numbers? Absolutely. People get divorced, or they lose their jobs, or something else may occur outside of their direct control. However from my experience, the folks who go through those kinds of life altering circumstances who were well qualified from the start are more likely to handle it in the right way.
#1: Know that the weaker a person’s qualifications are, the less the Lease contract means to them. Let me write that again, the weaker a person’s qualifications are, the less the contract means to them. Why? Because 1) they don’t have as much to lose or 2) their poor qualifications are a representation of their standards in life as a whole. Now, initially while trying to get approved, they will be your best friend and they will say everything you want to hear. “My 100 pound pit-bull has never once urinated in the house, and he wags his cute little tail every time he sees a rainbow!” With that said, I really don’t believe that most people are intentionally deceitful, I just think they may not see things the same way you do, or they may be in survival mode which alters the way they think, talk and attempt to influence others.
#2: When it sounds too good to be true, it’s said to distract you from the truth. Have you ever seen the movie Catch Me If You Can? Well, it’s a story about a very successful con-artist, and one of the first tricks he learns is the power of distraction. When tenants offer to pay a year in advance, or they offer to completely remodel the home while living there, it is because they have something to hide that they don’t want you to see or to ask about. That is what we call a big red flag.
#3: Before you even consider listing your property, write down a standard that you are going to stick to. If you don’t have enough experience, get an experts opinion or look at Experian credit statistics. For example, you may decide that you will not accept prospects with a credit score below X, and/or you may decide that you will only accept prospects with very strong current and past housing references. As already stated, if you decide on the fly based off of feeling, I hope you have a lot of liquid income – because pain is on its way.
If at any time you need the services or the opinion of a licensed professionally property manager, please feel free to contact us. Thank you!