How Well Do You Know Your Applicant?

We have become a very transient society, never sitting still for long. Sure, there are still people who are born, reared and live their whole lives in the same small town. But the majority of us move from city to city, state to state, throughout our lives. Because of all this movement, those in property management often needs an atlas to decipher a prospective tenant’s rental application. Previous addresses and employers are often listed in multiple towns and states, and even a tenant’s personal references might not be in the area, or even in the state, where the rental property is located.

None of this is out of the ordinary or suggests that a person won’t make a good tenant, but it does raise the importance of a thorough tenant screening. Doing an in-depth background check on every prospective tenant will give you access to previous eviction notices and criminal records. Tenant screening also includes national searches in criminal sex offender databases that will give you peace of mind as well.

Gone are the days when you’d recognize a prospective tenant’s name or face, when you’d know their aunt or grandmother or boss. These days you are far more likely to have a complete stranger vying to live in your investment property. So do your homework and get to “know” them — thoroughly and promptly — before you have them sign a rental agreement.

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Being Nice Doesn’t Mean Compromising Principles

It’s OK to negotiate with potential tenants, especially if they’ve made a good impression on you and their application is in order. But too often landlords find themselves compromising their goals or going outside their comfort zones to appease people who haven’t even technically signed a lease yet.

That’s why it’s crucial that the landlord or property manager stays in control of the situation, from the initial walk-throughs to the lease signing and beyond.

1. Don’t accept someone’s copy of their credit report. Run your own. In fact, do an instant tenant report to see right away whether someone is worthy of being your tenant.
2. Don’t trust the fact that the person “seems nice.” Do a background check to rule out any criminals or sex offenders.
3. Don’t blindly accept someone’s request for a favor regarding when to give you the security deposit or first month’s rent. If they’re already having trouble coming up with money owed to you, it’s a good sign they’ll have trouble every month.
4. Don’t allow a prospective tenant to dicker with you over the rent price. Do your market research before deciding on what to charge for rent. That way when they complain that nobody in the area is asking that much, you’ll know whether they’re lying.
5. Don’t overlook a red flag, such as a pet being moved into the rental unit when the tenant said there were no pets. A tenant who lies is a problem tenant, and you’re probably in for a lot of headaches.

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How to Find Tenant Buyers

If you are thinking of selling your investment property, a good way to go might be to find an interested, qualified tenant to sign a lease option purchase.

Of course finding the right tenant for such an agreement is the hard part. Tenant buyers are people who consider buying a home with a lease option as the best bet for them to own real estate.

There are many reasons tenants rent property instead of buy, but one of the biggest is the inability to obtain financing for a mortgage. Finding them isn’t as hard as it might seem, you just have to make your intentions known.

First, take a closer look at the current tenants. Are they financially secure? Do they have stable employment, pay rent on time, and take care of the property? If so, it might be a good idea to present a lease option purchase to them. They may not know that you would like to sell the house, and giving them first crack at it could be the perfect solution for both of you. (You’ll want to go ahead and run a current credit check on them if they are interested.)

Another way to go is to list your property as a rent-to-own or lease purchase option on websites and in a classified ad. Potential tenant buyers will come out of the woodwork, particularly if the property is in great shape and ready for new tenants who dream of one day owning their own home.

Credit reports can tell a lot about a potential tenant, but they do not show whether someone has a previous eviction notice. Fill in the blanks on a prospective tenant’s background by using a tenant screening service to see important details about their rental history.

Should An Applicant’s Bankruptcy Filing Be a Red Flag?

Thanks in part to the economic crunch happening across the country, more and more people are resorting to bankruptcy to get them out of the debt they’ve accrued. Should bankruptcy be a red flag for a possible problem tenant? And can a landlord reject an applicant because they’ve filed for bankruptcy?

In short, yes, landlords do have the right to set specific tenant selection criteria — including bankruptcy filing — as a reason for rejecting an application. Federal fair housing laws do not include a protected class for financial status. Whatever criteria the landlord sets up, he/she must be fair and apply that criteria across the board to every applicant.

Is it always the wisest decision to bounce an application because of a bankruptcy filing? That’s hard to say. Bankruptcy is a legal right allowing relief from certain debts, but a landlord wants a tenant who has a fairly solid history of managing his finances. A bankruptcy filing indicates the applicant was unable to meet his financial obligations during a certain period.

But a landlord should take a look at the circumstances and timing surrounding the bankruptcy filing. Bankruptcy stays on one’s credit report for seven to 10 years. If the prospective tenant is nearing the end of that time period and has had a clean credit history since then, there’s a good chance he/she has put their financial troubles behind them. Talk to the applicant about the underlying cause for the bankruptcy, and see if those details check out in the applicant’s credit report and background check.

Finally, some landlords believe that if the applicant has adequate income to cover rent and living expenses, he is probably in a better position to be a qualified tenant than before the bankruptcy. Since bankruptcy discharges old debts, freeing up the applicant’s income for present expenses. Also, bankruptcy cannot be filed again for several years, which means those who’ve been down that road once are highly unlikely to go there again.

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Before Buying Investment Property, Consider This

Are you thinking about buying investment property and hoping to make a second income from leasing that property? There are a few critical things you should consider when deciding what property to buy.

1. How many tenants could you get from the property? If it’s a single-family home, chances are you’ll only have one source of income for rent. If that tenant falls behind on payments there won’t be any money coming to you to help pay the mortgage. In a duplex or other multi-family housing situation, you’ll have multiple income streams. Then again, more tenants means more maintenance and, perhaps, more hassles.

2. Make sure the building is inspected by a qualified, reputable home inspector. You don’t want any surprises when it comes to necessary repairs or upgrades before you can even begin leasing the space.

3. Check the comparables. Find out how much similar properties in the neighborhood are charging for rent, and what that includes (sewer, trash, parking, other utilities). If your rental income expectations are too high for the area, it’s best to keep looking.

4. Come up with a plan for how the property will be managed. Will you serve as the landlord, or hire a property manager? Will you inspect the property regularly? Do you have a relationship with a nearby repairman to do routine maintenance and repairs when necessary?

5. Consider the location. If you’ve never owned an investment property, you’re probably going to want one that is close to where you live. Buying and leasing a building in a different town can be more of a hassle than you bargained for.

Credit reports can tell a lot about a potential tenant, but they do not show whether someone has a previous eviction notice. Fill in the blanks on a prospective tenant’s background by using a tenant screening service to see important details about their rental history.

Rental Payment History May Be Added to Credit Rating

Tenants who are late paying rent have never been concerned about the impact that a late rent payment might have on their credit rating. But that may be changing, as Experian RentBureau, one of the big three credit bureaus, recently began collecting data about consumer rental payments and including that data in its credit reports. This year Experian is only reporting positive rental payment information, but starting in 2012, the company also will report negative information such as late rent payments.

Some experts say including data about rent payments in credit reports could benefit consumers because it will help banks and other lenders pick up on potential consumers who are credit-worthy even if they don’t yet have traditional forms of credit, like credit cards or mortgages. It could be useful for a good tenant who’s never been late on rent to have that kind of positive credit history show up on a credit check when they’re looking to buy their first house or want to establish credit.

RentBureau is a national network of 45 property companies that collect data about rental payments and automatically report that payment history to RentBureau every 24 hours. Experian acquired RentBureau in 2010.

Did you know previous eviction notices don’t show up on credit reports? Don’t be duped into thinking a credit check is all you need to be assured you don’t have a problem tenant. Get a professional tenant screening!

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Where to Advertise For Your Next Great Tenant

You’ve got a great property, now you just need great tenants. But how do you go about finding suitable tenants to lease your building? The key is to use several different avenues to advertise your property and reach out to potential renters.

• Newspaper ads: This is a traditional approach, but one that still works. When people are looking for a new place to live, they often search the Want Ads in the local newspaper. Call the paper and find out the rate to place your ad in for several consecutive days or weeks, making sure to hit at least a few weekends to grab those tenants who are diligently circling ads on a Saturday morning. Be sure to find out what kind of online presence your ad will receive on the newspaper’s website.
• A sign on the property: If your property doesn’t have a “For Rent” sign on the most visible side of the building or yard, you’re doing yourself and your property an injustice. Don’t overlook the importance of getting the attention of those simply driving by — if they’re in your neighborhood, chances are they live and/or work in the area and could be the perfect tenants.
• Websites: Websites like Craigslist.org are a great resource to use when looking for tenants. Be sure to use a catchy headline in your ad, and always include pictures. Many prospective tenants will skip right over an ad with no pictures.
• Word of mouth:  Get the word out the old-fashioned way — tell people! Send an email to colleagues who might be interested or know someone who is. Spread the word to friends and relatives that you’ve got a great place to rent.
• Social Media: If you’re a property manager, create a Facebook page to let current tenants know about pertinent news, and to garner interest in commercial or residential properties coming available for lease. You should also create a Twitter account and build up a following of local businessmen and women. Send tweets to let people know of rentable properties on the horizon.

Credit reports can tell a lot about a potential tenant, but they do not show whether someone has a previous eviction notice. Fill in the blanks on a prospective tenant’s background by using a tenant screening service to see important details about their rental history.


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