What Make A Good Renter?

Is a good renter someone with great credit, or large deposit or maybe  high income?  The approach landlords take in qualifying their renter could be changing because of the housing crisis and the large number of foreclosures.

The main objective of renting your home should be to have a qualified renter that will pay rent on time and take care of the home to some degree.  Large deposits can maximize renters responsibilities to the care of your home, but what can be done to help minimize renters late pay or simple non payment and evictions.

The qualifying approach I encourage landlords to take is one similar to underwriting a loan.  The question that everyone should ask themselves before renting their home. Can my renter make the payment on a consistant basis and how?  This question is always answered by employment.  There are a number of way to increase the odds of finding a good renter just by looking at their employment.

Time on the job - The length time at the current employer is the first thing you should look at.  If a potential renter has been employed for a number years this helps build a case that consistant income can help provide for timely rental payments. 

Proof of income - Not only knowing where your renter works, but knowing exactly how much he makes is very important.  It is not out of the question to ask for the last two paystubs and last years W2’s.  While this may seen extreme, you have answered two critical questions.  Does your renter really work and how much do they make.

Debt to Income Ratio - While pulling credit can give you an idea of credit score and repayment history, how are you going to judge individuals that have gone through foreclosures and bankruptcies.  Sometimes a bad borrower is a bad borrower and you need to decline them for your rental,  but in today’s market place you will find more good renters with bad credit than ever before.  My suggestion is to look at credit, income and employment and determined a debt to income ratio .  This will illustrate whether they have sufficient income to cover their rent and debts.

This process is very similar to qualifying for a home mortgage.  It is up to the landlord to develop their own guidelines as to what is acceptable to their market place.  This is a very simple process to help increase the odds of a good renter - check employment, have proof of income, and determined debt ratio.

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Tags: Credit, debt, employment, income, landlord, lease, rental, rental-property, renter, tenant

As a young boy, I was lucky to have some great mentors. My grandmother is one of the best business teachers I’ve ever had and before I get too deep (which I will in future articles) into the financial analysis of real estate investing, mortgage financing, and other “on target” topics, I thought it best to tell you a little about me first. The easiest way to learn all about me (and real estate) is to get to know my Grandma.

So a story is in order…

Grandma told me once as a teenager when I pestering her to spill the beans how she made so much money, “Your grandfather and I never cleared more than $35,000 a year from the restaurant.” I didn’t believe her…and it must have shown on my face because then she said with out hesitation…and I’ll never forget it…almost as a whisper…

“Real Estate”

The words echoed through my head and I just stared at her. She smiled a little crack of a smile…and said it again…”real estate”.

A flood of questions began forming I simply had to get the answers too and over the years, I got them all…and I’m here to share them with you. So stay tuned.

But I am getting ahead of myself…you need a little back-story before we move on…the restaurant!

My grandmother owned a small restaurant in an Ozark Mountain town called Rogers, Arkansas. The town or the restaurant was not very remarkable. The restaurant opened everyday but Sunday at 4:30 am to serve breakfast to the early-rising working folk. The first in the door every morning was Sam Walton.

If you know your Wal-Mart history, the very first “Wal-Mart Discount City” was opened in Rogers, Arkansas in 1962. The corporate headquarters to this day is a few miles away in Bentonville. Back in 1971, when my learning at Grandma’s knee began, this first store was being converted to Sam’s proto-type “Supercenter” store to prove to Wall Street his concept would work in rural areas…and he needed a hearty breakfast to get the day started.

As I said, there was nothing remarkable about this restaurant, except the lady who ran it. It wasn’t only me who thought so. Sam thought the world of Grandma too. And I was soon going to learn why.

As kids, we don’t really know that much about our elders’ adult lives. We are not privy to the “reputation” of our parents and grandparents in the community until we get older…or until we endeavor to find out. I always noticed how patrons at the restaurant always treated my Grandma with so much respect, but I just assumed they were being nice. Down deep I always knew there was more to it and vowed to keep my eyes open for any hints.

My answers would come in a handful of years when our talks about real estate grew more substantial. I knew at the time we lived in one of Grandma’s “rentals”, but I had no idea so did a large chunk of the community.

Come to find out, every waitress that ever worked for my Grandma, rented from her. A lot of the nurses at the hospital also rented from Grandma. Many of whom eventually went on to buy the house from Grandma, often times with her going down to the bank with the tenant and cosigning for the home loan.

I asked her once after notice this predilection to rent predominantly to women, “Why so many women renters Grandma?”

She said, “They never had a chance. I can remember in the 1950’s, when your Grandfather was in the Navy and on that damned sub for years at a time, I had to tote your mom and uncle around to rent places to live. The landlords all looked at me funny…like I had a “scarlet letter” on my dress or something. More than one got a little fresh with me too…if you know what I mean.”

I didn’t. So, I clarified, “You mean they implied a “roll in the hay” would get you the rental?

“Oh, there was no implication…it was plain spoken.”

The only retort I could muster was, “Gross”.

She said, “I promised myself if I ever got to a place where I could help other women or single mom’s who also endure this indignity every day…I would.”

My first lesson was about to arrive…she was carefully crafting her next words…I could tell…

She said, “Rob if you can relieve somebody’s shame…do it. And at all costs, never add to it.”

Then it hit me. Grandma wasn’t in this rental game only for the money. Hell, she may not have been it for the money at all!

She was on a mission. A mission to stop the indignity she once felt as a woman with 2 children who just “looked” like an unwed mother. She could just imagine the actual unwed mothers who fell for the advances, and many did since their shame was real.

Now I also had my explanation for my Grandma’s stand in the community…the reason she was so respected. It was all starting to make sense.

What can you and I learn from this?

As landlords we now have the opportunity to do the same thing…relieve shame. There are a ton of foreclosure victims who are being shut out of the rental market due to their foreclosure. A recent article in the San Diego Union-Tribune quotes industry insider stating:

Ron Bowdoin, who oversees 2,500 rental units for the SARES-REGIS Group in Los Angeles and the Inland Empire, said foreclosure victims often fail to meet his company’s credit standards.

“As they reach the brink of foreclosure, their credit reports have suffered tremendously,” he said. “We have to do a co-signer or large deposits to get them into apartments.”

They feel awful and get treated by the big rental agencies and apartment complexes like day old fish. A foreclosure on your credit is today’s “scarlet letter”.

As private rental property owners, we decide who to rent to…and I am now imploring you to take a look at the foreclosure victim as the best renter you can find today. As a matter of fact, my original title for this article was, “Foreclosure Victims Make The Best Renters”.

I believe and my Grandma proved relieving somebody’s shame makes you the winner. Helping today’s foreclosure victim puts you on the same path as my Grandma.

Believe me when I say…and I’ll demonstrate this with future articles here on Bigger Pockets…it’s a spiritually and financial fulfilling path.

Good Luck!

Tags: foreclosure, income, income property, money, real estate, real estate investing, rental, rich

I guess it’s a philosophical difference. I know several investors who have a bare-bones approach to getting rentals ready and maintaining them. I see their point because they are looking at it as a revenue generating object. Maintain just enough to protect the object and the investment.

On the other hand, I tend to go in the other direction and perhaps do too much to get a property ready and maintain it. But here’s the deal: my philosophy is to increase value and attract better tenants and keep them satisfied.

I don’t know if I’m right, but there is method to my fix-up madness. I want to attract a tenant who will be pleased with the house. I also have this idealistic notion that people will take better care of the property if they see I care about the property. Okay, you can quit snickering now.

Here is a list of reasons why I go a little overboard on fix-up and maintenance.

1. I want the tenant to know that I care about the property and that it means something to me.
2. I want the tenant to be proud of where they live.
3. I want the property to be much more valuable when I sell it than when I bought it.
4. I want to get a reputation of renting good homes in good condition and keeping them maintained.
5. I want to be respected as a landlord and attract tenants through word of mouth.
6. To minimize turnover and vacancy.

However, I do see that doing too much can negatively affect return on investment, so I have learned from other investors how to be frugal and not throw money away on vanity and a overdeveloped sense of aesthetics. Like everything else, I guess it’s about balance, but I tend to go more in the direction of doing more rather than less in hopes of getting a better return in the long run. Naive? What are you, and over-doer or an under-doer?

Tags: income property, landlord, real estate, real estate investing, real estate investor, rental, rental-property, tenant

It was bound to happen sooner or later.

The real estate bust of 2008 is finally having an impact on one of the last hold outs, New York City.

Manhattan, in particular, seemed all but immune to the current subprime mortgage mess mostly because foreign buyers were able to take advantage of the declining value of the U.S. dollar.

But, now, even that bubble has apparently burst.

The Real Estate Group in New York reports that rents in Manhattan decreased last month by more than 7 percent.

The last time rents actually went down in Manhattan, George Washington was president!

Part of the reason, no doubt, is that, even in New York, there is somewhat less demand for expensive condos and co-ops leaving many to the rental market. That translates into lower prices.

According to Multi-Housing News, there are some who believe the situation in New York will now worsen..a lot.

It quotes James Hughes , dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University as saying that housing “might be twice as bad as the period after the 1980s real estate bubble.

One bright spot here…according to Huges, those who held on to their real estate property throughout the last bust and subsequent upswing saw their houses, on average, double in value.

Tags: manhattan, new york city, real estate, rental, rutgers university

The volatile residential real estate market that is currently affecting thousands of homeowners across the country will undoubtedly force many people to postpone their dream of homeownership and settle for life as a tenant in a rental property.

As more and more individuals and families enter into short and long-term leases, it is essential for them to have a basic understanding of the function and permissible use of security deposits.

The basic purpose of a security deposit is to give the landlord some level of protection against excessive wear-and-tear of the property by a tenant. Over the years, many landlords have often charged tenants a disproportionate amount of security upon signing the lease or have misappropriated or misapplied the funds in violation of the law. If you are going to enter into a residential lease, it is imperative that you understand your rights with respect to the security deposit funds you give the landlord.

Many states restrict the amount of security that a landlord may obtain from a tenant. In New Jersey, for example, a landlord may not seek in excess of one and one-half times the regular monthly rent payment as security. Landlords are typically required to deposit the security in an interest bearing account. In New Jersey, the landlord is required to either pay the interest each year directly to the tenant or apply the interest to pay part of the tenant’s rent that is due.

Further, the landlord must disclose via written notice the following:

1. The name of the bank where the security is deposited
2. The address of the bank
3. The type of account in which the security has been placed (i.e. money-market account)
4. The amount of interest the account pays. This notice usually must be provided to the tenant within a set amount of time, such as thirty days, from the date the landlord receives the security. Most states also require that the tenant be given notice when the security deposit is transferred from one landlord to another (upon the sale of the property) or if the landlord moves the security from one financial institution to another.

In most state statutes, the tenant’s rights are spelled out in the event that a landlord does not handle the security according to law. For example, a tenant may be able to pay past or future rent from the security deposit if the landlord has failed to pay the yearly interest to the tenant or has not given the tenant proper notice about the particulars of the security deposit.

Also, some states forbid the landlord from taking any money from the security to pay for repairs or rent due while the tenant still lives in the property. Landlords are also restricted in collecting additional security from a tenant at the same time that the landlord increases rent.

The most important issue to most tenants is how to retrieve the security deposit upon the expiration of the lease-term. Again, looking to the law in your state should provide the method and time frame for obtaining the security deposit from the landlord. Typically, a landlord must return the security deposit within thirty days of a tenant vacating the property less any charges for unpaid rent and damages to the property. The landlord is obligated to provided a complete list of the damages he/she claims and the estimated cost of repairs in writing and sent via certified mail.

The landlord can only charge for property damage that exceeds ordinary wear and tear. Examples of normal wear and tear are faded paint, window cracks caused by weather and leaky faucets. Also, the landlord can’t deduct a cleaning fee from the security provided the tenant leaves the property in broom-clean condition. Beware of landlords who try to deduct cleaning fees and painting fees from your security deposit!

To protect yourself, have the landlord inspect the property before moving out. Have the landlord sign a note indicating that the premises are clean and undamaged. Finally, take pictures of the property before vacating the premises. Remember–the security deposit is YOUR MONEY. So, make sure you do what is necessary to get it back from the landlord…with interest!

Tags: apartment, apartment security deposit, landlord, real estate, rental, rental security deposit, security deposit

Looking to send your tenants a signal that you’re partially human? With the holiday season in full effect, now is a perfect time to get into your renter’s good graces.

Here are a few ideas to let your tenants know that you’re not so bad this holiday season:

• Send out Season’s Greetings Cards
  The cost is minimal and the benefit is outstanding. A simple card can go a long way towards tenant loyalty.
• Decorate your Property for the Holidays
  Keeping things festive always puts a smile on your tenant’s faces.
• Throw a Holiday Party
  This works better for larger buildings (I’d guess 4+ units). Mingling with your tenants under a different set of circumstancess will help them to look at you in a different light. The holiday party is a nice perk that can go a long way towards tenant happiness.
• Upgrade Your Apartments
  We’ve talked in the past about using incentives or gifts to attract tenants. The holiday season is the perfect time to do a few upgrades on your units. Even simple things like new hardware, doorknobs, etc. let your tenants know you care.

Remember, a happy tenant is often a long-term tenant. Find some way to thank them and show your appreciation!

Tags: apartment, happy, holiday, landlord, rent, rental, renter, tenant

I realize that this is a very basic tenet, but when times are rough, we don’t always follow it. The reason we screen tenants is to ensure that we, as landlords, will be paid, and that our property will not be damaged or destroyed.

What happens when the market is slow and you can’t find a tenant?

I’ve gone through periods where some of my units have gone months without being occupied. There were some applications, but I turned them down after screening them. Why? These tenants would have resulted in more work from me and my lawyer.

You don’t have to evict a tenant you don’t have!

It is always tempting during slow periods to drop your tenant standards, but that is what can get you in trouble. Avoid the temptation and continue to market your rentals. You’re better off taking a small loss then a huge one later.

The three most important things to look at when screening tenants are:

• Credit Report - Does the applicant have many of their accounts overdue? Do they pay their bills on time? This is a good indication of whether or not they will pay rent on time as well.
• Rental History - Contact previous landlords. Why did the tenant move? Did they damage the property? Did they pay rent on time? Were they “problem” tenants?
• Employment history - Does the applicant have a job? Can they hold a job down?

If you focus on these three points and do your homework, you will not have to worry about evictions or problem tenants. They will never get the chance to rent from you in the first place.

Note: This is not a perfect system, but neither is life!

Tags: Credit, damage, employment, landlord, rental, renter, screening, tenant