Real Estate Rookie Podcast

Rookie Podcast 06: The Ultimate Beginners Guide to Tenant Screening with Lucas Hall

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Today we tackle the often-overlooked—but perhaps most important—element of real estate investing: actually placing a (great!) resident in your property.

Our guest Lucas Hall built website Landlordology.com (which he later sold to Cozy, where he now works) and is an expert on best practices for landlords self-managing small portfolios (that’s you!).

Lucas walks us through his exact process from the moment he lists a property for rent to the moment he signs a lease—AND explains what's changed (and what hasn't) since the COVID-19 outbreak began.

Want to avoid evictions and vacancy? Listen up…

Lucas has been a landlord for 10-plus years and owns four properties across three states. Yet he still hasn't had to evict anybody. That's not an accident; it's the result of a firm but fair process he follows every time there's a vacancy.

Plus, we add a fun twist toward the end of the episode when a rookie investor—Andrés Bustamante—jumps on the call to ask some GREAT questions about his own current search for a tenant.

This is a timeless episode that will be just as relevant years in the future. Check it out now, and subscribe to Real Estate Rookie so you won’t miss the next one.

See you next Wednesday!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Ashley:
This is Real Estate Rookie show number six.

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Lucas:
I’d love to just talk to you very briefly, like three to five minutes on the phone, just to make sure that this house is what you’re looking for, and I’d love to ask some initial questions for you. Then we can set up a time for a showing. That’s called pre-screening. That initial discussion is so critical so that you don’t waste your time and so that you don’t waste their time, because if you don’t do that and you just immediately set up a showing from the first interaction, then they’re going to get there and be like, “Oh shoot, I thought it was a four bedroom instead of a three bedroom.” Then it’s a waste of everybody’s time.

Ashley:
My name is Ashley Kerr, and I am here with my cohost, the Gap model, Mr. Felipe Mejia.

Felipe:
Why do I got to be the Gap model? All I did was get a haircut?

Ashley:
Because you’re looking good.

Felipe:
Thank you. I got a haircut and I’m wearing a shirt. Now, the reason you’re saying that is I was in Daytona, Florida. I was quarantining myself. I was listening to our leaders and making sure that I was in a safe distance from others, but I was on vacation so I didn’t have any shirts, so I came back home to Nashville to pick up some essentials.

Ashley:
You make it seem like you’ve been shirtless this whole time.

Felipe:
Well, at one podcast you told me to go change my shirt. I was in a tank top, it’s all I had. I came back to get some essentials and stuff, so that’s why I’m finally wearing a decent shirt.

Ashley:
You have to tell everyone, because I love your wife, I got to meet her about a month ago when I came to visit you in Nashville. Please tell everyone what the essentials were that she asked for, because I just love her and she is so cute.

Felipe:
Well listen to this. I love my wife, she’s amazing, but I don’t think she understands the word essential. I came back for clothes, more deodorant, some things that we need, toilet paper that we had hidden here. I was like, “Okay babe, what do you need? I want to make sure that I get stuff for you too. Do you need more clothes?” She’s like, “Okay, I need my hair straightener and my tweezers.” I was like, “No babe, essentials. If I can fit that in the luggage, then I will, but I got to …” She’s like, “Okay, listen, my robe, my tweezers, and my hair straightener.” Those are her essentials. I was like, oh my goodness.

Ashley:
I love that, because my list would probably be something similar.

Felipe:
I could see that being the essentials. We have a great show today, by the way.

Ashley:
Yes, we do. We have Lucas Hall on here. He has a website called landlordology.com. On his website he talks about being a landlord, and specifically tenant screening is what we are going to talk to him about today. He actually has a guide that he wrote on his website, so we'll talk a little bit about that, and how he might be changing his systems, or what he's doing with tenants that can't pay during coronavirus.

Felipe:
Yeah. Then we have a rookie guest who's actually going to ask him some questions because he is literally going through something right now where he has a four bedroom house. He's living in one room, he's house hacking too, and he has a spare bedroom that he needs to rent out, but due to the whole coronavirus thing he's kind of nervous, kind of scared, doesn't know where he's going to go. Lucas really gives him some information on how to properly screen a tenant and get the right paying tenant in there. I thought that was the end of it, and then Lucas drops a bomb and says, "But the tenant also has to be willing to pay. Not just can he, but willing." Blew my mind. I love the show, I can't wait to get into it.

Felipe:
Then for me, there was a moment there where it was 10 minutes of me just quiet because I’m just listening to you and him talk, and you guys just drop bombs. Great show. Really excited to have him on.

Ashley:
Yeah, and I love that we brought a rookie on to ask the questions. We’ve been doing the shows like that, getting rookies on here, and that’s been my favorite part. Lucas really brought some value to Andres. Let’s stop wasting time and let’s just bring Lucas on.

Ashley:
Today we are going to focus on tenant screening. This is a common question we’ve seen in the forums on the Rookie Facebook page. What’s going on right now, and can we still find tenants? Are people losing tenants? We’re going to talk all about that today with Lucas Hall. Hi Lucas.

Lucas:
Hey guys. Thanks for having me. This is awesome. I’m super excited to be here.

Felipe:
Hey Lucas. Thanks for coming on the show man, and thanks for talking. I know our listeners really want to know about this topic, about tenant screening, especially right now with everything that’s going on, the uncertainty. People want to know with regard to tenants, good tenants, bad tenants, how to get the right tenants, cream of the crop, stay away from the bad ones. They’re really wanting to know everything to do with tenants because that’s going to be their livelihood if they’re investing in real estate right now.

Lucas:
Sure. I mean, tenant screening is critical. I tend to think that the best way to find good tenants is to make sure that they never move in in the first place. It all starts at the very beginning before we sign any lease. Honestly for me, I’ve been leasing properties, renting my own properties for almost 15 years now, and I never once had a situation where a tenant bails on me for rent, or I’ve had to go all the way through eviction. I think that’s not because I’m just lucky, I think it’s because I spend the necessary amount of time and the information to screen tenants properly. If you do that, you won’t have much of a problem later on.

Ashley:
That’s great for over 15 years not having to go through a full eviction or have anyone leave without paying.

Lucas:
Sure. I understand all of that, for about six years or so I’ve been teaching other landlords how to be more practical, more efficient, better off, and how to avoid pitfalls like that.

Ashley:
Where are you investing now, do you have your properties?

Lucas:
Sure. I have five properties in three states. About 20 to 22 tenants a year. Some are in DC, some are in Virginia, and I’ve got two in Colorado.

Ashley:
Okay. How do you manage the screening on the ones out of state? Do you have a leasing agent out of state that does that for you?

Lucas:
No, I don’t. Actually I live in Colorado now, I’m just outside of Denver, and two thirds of my properties are in DC and Virginia. I tend to manage those from 2000 miles away, including screening, including showings, including lease signings. I’ve got that down to a science, and it’s not that hard. It’s funny because with all the crisis that’s going on with pandemic, it’s interesting because a lot of the techniques I’ve used for years with remotely screening people, it’s like everybody wants to do that now.

Ashley:
Yeah.

Felipe:
It’s interesting because we get a lot of questions about screening tenants. What’s the golden rule for you when screening tenants to make sure you don’t ever have to evict somebody, or don’t ever have to go after somebody for rent, or things like that?

Lucas:
Critical. The number one most important thing you can do when you’re screening tenants is to make sure that they’re able and willing to pay rent. Those are two very different things. If they’re able to pay rent, that means they have some sort of an income, or they have just a chunk of cash that they’ve allocated towards this, and they have the means to do so. Willing is a different thing. I’ve met a number of people who have hundreds of thousands of dollars in the bank, and they’re trying to rent my property, and they also have a chip on their shoulder and they just like to kind of stick it to the man more often than not. I can tell that they would not pay me if they had a choice. The means, able and willing are two very different things. If you can find somebody who is able and willing to pay rent, I think most of your other problems will go away.

Felipe:
How do you question willing though? What’s a good way to say this person is going to be willing to pay, or is not going to be willing to pay? Let’s dig into that.

Lucas:
Right. Past performance. It’s just like anything else. If you go in for a job interview and they want to know, have you been able to do something similar in the past, and how successful were you? It’s the same thing. When you’re taking that application from somebody, you want to make sure that you get their last two landlord’s information, so you can contact not only the place where they’re living right now, but you want to contact the place that they moved out of prior to that.

Lucas:
Because you talk to that second, going back second landlord, and that’s the person that’s going to tell you the truth. That’s the person that’ll say, “Well, they paid me most of the time.” Maybe they left the property in a mess, and they trashed it before they left. That current landlord that they’re working with, it’s good to talk to that person, but he or she might not be truthful with you if they’re trying to get the person out of their house. They certainly don’t know what condition the property was left in.

Lucas:
You want to ask both those people if they’ve paid rent on time, if they would rent to those people again, if they ever had any issue with late payments at all, and did they give them a hard time about paying the full amount? I mean, it really comes down to that. If they have a couple year history of paying rent on time without any flaws, then they’re probably going to be okay.

Ashley:
Could you take us through your whole process step by step? Pretend Felipe and I are applicants. We just graduated college. Big partiers ready to get out into the real world. Maybe Felipe has a job that he’s starting and I’m unemployed, looking for my first job out of college. Would you take us through that process of how you would screen us and see if we would be a good fit for your property?

Lucas:
Yeah, sure. All right partiers, let’s go. First and foremost you create some sort of a listing. You want to get your property out there, and there’s a variety of means to do that. Once you have that out there, people are going to start inquiring. The first thing I do is most of my inquiries will either come through email or phone, most of the time through email. I just say, “Hey listen, thanks for inquiring. I’d love to just talk to you very briefly, three to five minutes on the phone, just to make sure this house is what you’re looking for, and I’d love to ask some initial questions for you, and then we can set up a time for a showing.” That’s called prescreening.

Lucas:
That initial discussion is so critical so that you don’t waste your time and you don’t waste their time. Because if you don’t do that, and you just immediately set up a showing from the first interaction, then they’re going to get there and be like, “Oh shoot, I thought it was a four bedroom instead of a three bedroom.” Then it’s a waste of everybody’s time.

Lucas:
What I do is I get them on the phone, it literally takes three to five minutes. If they’re not willing to get on the phone with me, that’s a red flag right there, and so I can eliminate them. I usually ask them a couple very basic questions. One is, why are you moving? You’d be surprised how many self incriminating messages come out of that. When are you looking to move? That’s critical not because it’s necessary to find out … It’s really necessary to find out if the timing matches up with when you’re looking.

Lucas:
For example, a lot of times I’ll get somebody who’s interested, and they really are super interested, they want to throw down a deposit, it’s great, but they want to move in four months after I want them to move in, and so I would potentially have four months of vacancy, and it’s just not a great fit. I’m looking for somebody who’s willing to move, or can move around the time that I’m going to have a vacancy, so that I keep that place rented as much as possible.

Lucas:
Then I talk about pets, and smoking, whatever the rules are there for that property. Then also I talk about the income requirements. I tell them, hey listen, this is what it takes from an income standpoint to qualify for here, so let's talk about that real quick. If you meet those standards, then great, we can keep going. If not, then let's stop here. Then also I talk about credit and background check requirements. In some counties and states you actually are required to post or discuss your screening requirements before you take an application. By law sometimes you have to do that. I like to tell them what the credit requirements are, what the eviction requirements are, or background check, and just let them talk a little bit.

Lucas:
Then I tell them about the property briefly. Then if they’re still interested then I say, “Great. Let’s set up a showing.” From there I would say, “Hey listen, I’d love for you to check it out. Why don’t we get together? I’ll walk you through it, or I’ll have some sort of agent of mine go through it with you.” In the case of now, with everybody keeping social distancing six feet apart, one technique you can do, which I’ve certainly done before, is you say, “Hey listen, I don’t want to meet with you necessarily to show it to you, but love to do a FaceTime walk through with you.” If they have an iPhone, or use a different tool, and you can walk through the property with them. It’s just like they’re there, and they can ask questions in real time, and you can go through the property with them.

Ashley:
I like that a lot, because my property management company is just doing virtual walk throughs, where they just take the video and they’re putting it on their YouTube, which I thought was great. Doing the FaceTime so that they can say, “Oh, you know, can you zoom in on that closet? I want to see in there a little more.” That’s a great idea.

Lucas:
Yeah. You never know what they’re going to be interested in. Sometimes people want you to focus on the kitchen, and sometimes they want you to focus on the bedrooms. I find that is vastly superior than just doing a YouTube video, which is also good, but not quite as good.

Ashley:
Right.

Lucas:
If they love that, if they love the property, they want to see it, they also can ask questions, then from there I’ll invite them to apply. I’ll use an online application. I’ve always used online applications. If you aren’t using an online application to collect potential tenants, then start doing that. Because especially now with the virus and everything, you just don’t want to touch anything anybody else has touched. You don’t want to deal with paper applications.

Ashley:
It just saves time not having to get the application to them, and get it back from them too. To me that’s the biggest thing, is it saves time.

Lucas:
Right. I’ll tell you a quick story real quick. I had a group of applicants who were looking at this property. She had flown in from California. She looked at the condo and she said it was great, it’s exactly what they’re looking for, but she had to go back to California the next day. She goes, “Well, I really need my roommates to weigh in on this.” I thought, well shoot, I didn’t know you had two other roommates. I didn’t know. Said, “Well, they probably should see it before they apply.” I sent her a link to the application and all the pictures, and then on her ride back to her hotel, she texted her roommates, who weren’t even in the area. They saw all the pictures, they saw the video, she had taken some pictures while she was there, and they had the application.

Lucas:
One of the roommates was actually in the middle of hiking the Matterhorn in Switzerland when she got this email, and they were literally camping on the side of the mountain. She was able to fill out the application remotely from the side of the Matterhorn, and I had all three applications with all three credit reports and all three background checks by that night. I could look at it and the next day tell them, “Congratulations, you got it.”

Lucas:
I don’t know what was more impressive, the speed at which an online application helped me collect applicants, or the fact that she had cell service on the side of the Matterhorn.

Ashley:
Well it goes both ways too, because if you were off vacationing somewhere, you could still review those online applications too. That’s what I love about it.

Lucas:
There’s a ton of software out there that works fantastic with your mobile device. Like you said, you could be sitting on a beach checking credit reports while you’re screening somebody.

Ashley:
Yeah. What software do you use?

Lucas:
I use Cozy. Cozy is my go to. Then if they all apply, then I immediately look at their applications, I immediately look at their credit reports and background checks. This is probably the most critical part, but it’s also the quickest. If you use a tool like Cozy, or another tool that has online applications, they’ll summarize it all together for you real easy, and you can see what their income together is, what the household income is. You can see how that compares to the rent amount. If it’s two times the rent amount, or three times the rent amount, you can look at the credit scores. I have a set list of kind of non negotiables, and I’m looking to see if it hits those. Let’s just run through those real quick.

Lucas:
For me personally, I want the household income to be somewhere between two to three times the monthly rent, depending on the property. If it’s a less expensive property, it’s three times. If it’s more expensive, it’s two times. Depending on your county or state, you might need to keep that number the same regardless of which properties you have. I look at that, and I set that in stone for each property.

Lucas:
Then I look at the credit report. I look at the score first. If their score is below 650, then I dive in a lot deeper. What I'm looking for is what I call stupid debt. It's yeah they might have $300,000 in maybe student loan debt, which would be a lot I guess. $300,000 in a mortgage or medical debt, but that's okay. I don't have a problem with that, because I would take $300,000 in mortgage debt over $30,000 on a Gap store credit card.

Ashley:
Yeah.

Lucas:
That’s a lot of clothes. They may love The Gap, and that’s cool, but if they’re spending $30,000 and putting it on a credit card, a store credit card, then they’re probably not the right tenant for me. That’s what I call stupid debt.

Ashley:
Would another thing be for you is the collections on utility bills? Because that’s one thing that’s been coming up for me recently, and I know that we had one applicant that they wouldn’t be able to get the electric in their name because the collection was so large from the electric company, so they couldn’t move in anyways. I was just wondering your thoughts on that.

Lucas:
Yeah, utilities, essential things, I mean those are no brainers. If they haven’t paid their rent, but that’s not necessarily going to show up on the credit report. If they haven’t paid their rent, that’s a huge red flag. If they haven’t paid their utilities, that’s the second biggest red flag. Because you need electricity to live, you need heat to live, and if they can’t even afford that, they’re not prioritizing that over their big screen TV or their cable television, then they’re not going to prioritize rent over something else. It goes hand in hand.

Felipe:
Lucas, let me ask you a question that i know that some of the newbies are going to want to know, because this was something that shocked me. Now on the other side I’m like, well that shouldn’t have never shocked me. I should have known better. I get this all the time where people are like, “Felipe, I have a tenant that wants to pay cash for the next three months up front, and can’t wait to move in, and has got three months rent in their hand now. I should let them in, right?” I’ll let you take over.

Lucas:
Yeah, huge red flag.

Felipe:
Yes. Don’t do it.

Lucas:
I’ve been there too. I mean, I’ve had this guy walked up in a car that was worth … Well, he didn’t walk up. He drove up and then walked out, but came in a car that was worth a whole lot less than the amount of money that he was trying to hand me. It was rolled up with a rubber band around it, so it was in a literal roll. He was trying to hand it to me in the way that you would hand somebody if you didn’t want to be suspicious. You’re trying to sort of-

Felipe:
Shake hands with money in your hand, type of thing. The way grandma would slip you a 20.

Lucas:
No, cash is a huge red flag, because that just means that they’re doing business all in cash, which okay, can be okay, but it makes me want to dive in deeper. I certainly absolutely don’t want to accept that money right then and there. If they want to pay cash, I’ll tell them, “Hey, let’s go through the screening process, and I’m so sorry, I don’t accept cash. If you want to pay me later, after we go through the screening process, just go to the 7-Eleven and get a cashier’s check and bring that to me.” At least I have some sort of record that way. I never, ever, ever accept anybody who wants to jump in the next day and say, “I’m going to move in tomorrow.”

Felipe:
Here’s three months worth of rent. Oh my gosh, I had a terrible story about that. Someone wanted to pay three months rent up front and I was like, oh heck yeah, this is great. Then it took me three months to get them out. They paid three months and lived for six months. Yeah, terrible idea. I would never do that either anymore.

Lucas:
I’ll tell you why it’s a red flag mainly, because if they want to move in right away it’s probably because they’re being kicked out of their last place.

Felipe:
Yeah.

Ashley:
Right. Because most people have to give 30 days, 60 day notice, so you would start shopping around then for your apartment, not wait until last minute.

Lucas:
Right. Either they’ve done something so atrocious that their landlord is doing an immediate termination to quit, or they’ve had proper notice and they just waited til the last possible moment. Either way it’s a bad deal for you, so it’s worth skipping on that person, or at least going through the credit report process. Because I’ve found that the people who want to give me cash and move right away are also the people that are going to gripe about the $39 credit report and background check fee.

Felipe:
Yup. Same ones. A lot of our listeners also do the house hack. A lot of them do house hack, including myself. My whole business strategy around real estate is the house hack, and every single one of my tenants, all of my 45 tenants pay in cash. Now you were saying you don’t handle any cash, right, or do you mind explaining a little of that? Because I know a lot of house hackers that they live with their three other tenants, and they just collect cash, or Venmo nowadays too.

Lucas:
Did you say you have 45 tenants that house hack with you?

Felipe:
Yeah. I have a lot of houses that are all house hacked.

Lucas:
Okay. Sorry. House hacking-

Felipe:
Not with me. I don’t live with 42 people.

Lucas:
That’s a lot of roommates.

Felipe:
No. Sorry. I have eight houses with a certain amount of rooms that all-

Ashley:
He rents by the room.

Felipe:
I rent by the room. No, I don’t house hack-

Ashley:
His single family houses.

Felipe:
I have 42 teammates that rent with me here.

Lucas:
Yeah. I just don’t like cash for a lot of reasons. One is, if they literally pay cash, I mean somebody has to pick it up. Do you pick up your tenants’ cash, or how do they get that actual cash to you?

Felipe:
I pick it all up. We’ve looked into Cozy personally, and it doesn’t fit the bill for us. We have yet to find a company that adequately would serve my purpose. Especially some of my other friends that do high number of house hacks, I have yet to find an app that would suffice with what we need.

Lucas:
What’s the problem? Is it the fact that there’s roommates, individual leases on each room, that you’re having trouble?

Felipe:
Yeah, there’s individual leases in each room. Everyone’s paying Venmo or separate account. Then what we can’t do is we can’t link the bank accounts. If I go to the bank with Cozy, for example, they say the house needs to make the deposit as one by itself. I can’t individually do four deposits and follow them.

Lucas:
For Cozy and probably most of the other programs you would just create a multifamily property. Yes, it's one house, but then you would create multiple units. Bedroom number one would be unit number one, or you could call it bedroom number one. Then each room has its own lease, and so each separate rent ledger, and separate payment calendar, and separate everything.

Felipe:
I’d love to figure it out. We had a conversation. I’d love to do that, yeah.

Ashley:
That would be the same for Buildium and AppFolio that I've worked with too. You would just make them each a separate unit instead of one house with the four residents underneath.

Lucas:
That gives them the ability to pay with a credit card, or a bank account if they want to. I guess just the biggest reason I’m scared to collect cash is that I don’t want to get robbed. I know that sounds silly, but honestly I’ve seen this too many times. I have couple houses on Capitol Hill in DC, and while it’s a nice neighborhood, it still isn’t immune to crime. I’ve had friends, other landlords, with houses where they literally show up on the first of the month every single month. Then after a while the people who want to rob from you, they could be friends of the tenants for all we know, will wait outside. They’ll wait outside the building, and wait for you to leave with $10,000 in your pocket, and just ask you for it politely. It’s just a little scary. I don’t want to be in a situation where I’m walking around with that much money in my pocket, especially on a regular basis where they know it’s once a month.

Lucas:
Another thing with that is I actually had a lady come up to me at conference, and I asked her how she collected rent, and she said, “Oh, I do the ice cream truck method.” I was like, I’m so sorry, I have no idea what that is. Please tell me. She goes, “Well, you know, I collect cash, and I have all my houses on the same street, and so what I do on the first of the month is I roll my windows down and I blare my music, and I just drive down the street, and they all come out of their house throwing money in my car.”

Ashley:
Oh my god.

Felipe:
You can’t make that story up. I believe you 100%. You can’t make that up.

Lucas:
She thought that was the best thing.

Felipe:
Oh my god.

Lucas:
I couldn’t help her, but I think there’s other better ways than that.

Felipe:
I agree. I’m itching to find a way to do it, and I’ve done extensive research. I’ve looked at Cozy and Buildium. I’d love to sit down one day and learn a way to do it better.

Lucas:
Absolutely.

Ashley:
Yeah, because Felipe is one of the people that drive around on the first of the month now to collect his rent.

Lucas:
There we go. That’s awesome.

Ashley:
I don’t know about the music blaring.

Felipe:
It’s salsa music with my peoples.

Lucas:
Well, another thing if you do turn on one of these systems, a lot of them will accept gift cards, Visa gift cards and stuff, so if they do have money on cards, maybe they aren’t bankable, or if that’s the case they can also pay through gift cards and stuff like that, or credit cards. That’s cool.

Ashley:
Okay, so we talked a little bit about the credit report. What about a background check?

Lucas:
Yeah. This is key. I mean, and actually if you’ve listened to the news at all in the last couple years, more and more cities, especially bigger cities, are starting to require that you can’t use background check judgments necessarily. There’s a variety of reasons for that. Generally speaking in the majority of the United States you can use a background check, and you can use criminal activity as a form of screening.

Lucas:
What I tend to do, these are my requirements. I tend to tell them, “Hey listen, you can’t ever have an eviction on your record.” Now it drops off after a number of years, but if it’s on the record, that’s a big no-no. Because what that means is not that your landlord says, “Hey, you’ve got to leave.” An actual eviction judgment is where you as a tenant decide I’m going to not pay rent, usually, and I think I’m right. Then the landlord says, “You’re not right. I’m going to take you to court.” Then you go to court and the judge rules against you. You were actually incorrect for withholding rent, or doing something like that. The judge said, “No, you’re breaking the law. You need to go.” If you have that judgment against you, that means you thought you were so right and you were so wrong, and I don’t want that person in my house. Now if they got kicked out of a place because a landlord just terminated a lease, I don’t care, and that’s not going to be on their record.

Lucas:
What I typically do is say no evictions ever, and I look at criminal history over the last two years. I don’t necessarily judge for certain things, but I don’t ever let them have any sort of violent crime history. If they have abused somebody, or beat somebody, or they’ve been destructive, like maybe they burned down the last landlord’s house, I don’t want an arsonist in my house. It’s just not okay. That kind of stuff. No violent or destructive history.

Ashley:
For the safety of your neighbors or other people if it’s a multifamily living on the property, that’s important. I think right now would be a good time to mention too that you had kind of briefly said what’s the law in your state, is that every state varies, and it’s very important to look at what you can use as your criteria and what you can’t. Also, following fair housing laws to make sure that your criteria is the same for everyone.

Ashley:
At least in Buffalo and New York there’s the section 8 housing authorities. In Buffalo it’s called Belmont, and they actually do free classes, and they have a book that they give out too which states all of this for you. I recommend everyone, if you can, find your local housing authority and take one of those free classes, and get ahold of that book. Also, if you’re ever in a situation where someone’s coming after you about discriminating or not following fair housing laws, it’s kind of nice to go and say, “I take this free class every single year. I know what the laws are and I am following them.”

Lucas:
Yeah, of course. To your point, especially with section 8, a lot of areas require that source of income is actually a protected class. I guess we could talk about that real quick. There’s the federal seven, as I call them, for these protected classes, and those are race, color, religion, sex, familial status, the size of your family, national origin, and then any sort of mental or physical disability. In many, many cities and states source of income. Just because someone doesn’t have a job, or a W-2 income, doesn’t mean you can discriminate upon them, especially if they’re receiving section 8 housing vouchers. That is a source of income, and as long as they can pay rent, that’s okay, you have to count that.

Ashley:
Yeah. I actually heard a story recently where this investor, his mom had a couple properties, and she listed it on Facebook Marketplace, and she received a message from someone saying, “Do you accept section 8 vouchers?” Something along that lines. She said no, and it was actually someone under cover who was trying to catch her, because you have to accept it in that state. I thought that was very interesting, so be careful. Know your laws before you respond.

Lucas:
Right, and it is a web. It really is a web you can get tangled in. Because I know cities like DC, it’s not just so easy to accept a housing voucher. You actually as a landlord have to go through a long training process, and then your house has to be inspected by the housing department. Then you have to get approved, and make repairs before you qualify. It’s not just a yes or no question, there’s more to it. For sure, yeah.

Ashley:
Yeah. Let’s continue on. After the background check, is there anything else you require, like a driver’s license, their social security number? What happens there?

Lucas:
I do. Yes, so I don’t necessarily need the social security number for credit and background. I know that sounds weird, but I use tools like Cozy and other tools, where it just they put it in. I don’t necessarily have to see it, but then it authorizes it and I get all the information. To be honest, I don’t want the social security number of somebody I’m going to reject. I don’t need it. I don’t ever want it. I don’t want to be accused of stealing their identity.

Lucas:
I do want to see them in person. Well, I want to see their face. I require that we either meet in person, sometimes that’s done through the showing, or other times, like now, we just FaceTime and we just say, “Hey, let’s talk.” Then I will compare that to the driver’s license that they sent me. They’ll take a picture of it, text it to me, it’s fine. I want to make sure that they have a government issued photo ID, so that they’re not stealing somebody’s identity and moving in, or they’re using their grandma’s identity. I mean, to be honest, that’s happened before. I want to make sure I get a photo ID.

Lucas:
Then for income verification next, I go and I look at their last pay stub. That’s the biggest thing. If they have a W-2 job, they have a pay stub. That’ll tell me how much they make on an annual basis, how long they’ve been employed there, and who their employer is. I look to make sure all that matches up with what they’ve told me in their application, to see if they’ve fudged anything.

Lucas:
If they aren’t a W-2, and they don’t have a regular income, or they’re self employed and it kind of comes in waves, you can handle that easily. You just need to ask for their tax returns, or you need to verify their bank statements. I typically don’t want their bank statements unless I have to. That’s kind of a last resort, because I don’t really want to know all their business, or their bank account numbers. I don’t want that liability. Tax reports are the next best thing, so that’s usually what I do for self employed.

Ashley:
Would you recommend when people give you these documents to cross out their social security number or their bank account number?

Lucas:
Absolutely. I know that there are some landlords out there that are like, “I want all that information because I want to be able to sue them if I have to.” I get it. I get that, but it’s so much of a liability, and you don’t actually need the social security number.

Ashley:
Right. Yeah, you don’t need that information. You don’t even need their driver’s license really.

Felipe:
Lucas, what if someone’s in between jobs? You start with W-2, so what would you say if someone’s like, “All right, well I’m between the next job to the next job.” Maybe they do have a little bit of a history at their last job, you can call their last employer, but I don’t know, they’re going from one job to the next and there’s a month in between or something, and their lease just happens to come up. Because I’ve gotten that before, so what would you do in that situation?

Lucas:
I get that all the time because I rent to young professionals who are moving wherever to DC to do congressional internships, and they're starting in a month. As long as they have an offer letter from the future employer that says what they're going to make, that's good enough. I believe the job is there, I believe that's how much they're going to make, and I'll qualify them based on that.

Lucas:
Now if they don’t have a offer letter and they just say, “Hey, I’m going to move to town and then I’m going to get a job.” Well, that’s called being unemployed.

Felipe:
That’s unemployed.

Lucas:
Right. They just need to have some sort of money to show that they can pay rent. Maybe they have a bunch of money in the account, or worse, if I believe that they’re going to get a job, I’ll say, “Hey listen, I can’t give it to you based on your income, because you don’t have one, but I can co-qualify you with a cosigner. Go get a parent, go get a relative, go get somebody who makes more than you, which is anything, and have them apply with you. And then we won’t have a problem.”

Felipe:
Lucas, let me ask you one last question that some of the rookies that I know that rent to also a different class of tenants, DACA recipients. Have you ever had a DACA recipient apply? Well let me give you more example, who maybe doesn’t have a social security, but has an EIN number, or is using a government issued ID, but is still in limbo in that situation.

Lucas:
Yeah. Actually I have, now that I’m thinking about it. I had a foreign exchange student from China, who came over.

Felipe:
Yup, exactly.

Lucas:
Yup, and they don’t have social security numbers, so you can’t get a credit report on them, or can’t easily. There are companies out there that do international credit reports, or at least that’s what they’re calling it. There’s companies out there that will go and try to search the databases of those countries, if that data is available. Now, it’s sparse, but it’s a possibility. I forget the name of the company, I haven’t talked to them in a year, but they’re out there. You can try that.

Lucas:
What we did in the case of this foreign exchange student, he actually had a recommendation letter from the university that he was working with, and from the program, and showed essentially it was a paid internship, or paid foreign exchange thing. It was weird. I hadn’t seen that before, but he was actually making money off of it, so even better. He had these official documents.

Felipe:
Right.

Lucas:
I just used what I could as much as I could, and then I tried to call his former landlords, which in this case were in China. I didn’t have much to go on, but I could qualify him enough to take a risk.

Lucas:
Now if you're not sure, if you're still not sure based on the information they give you, then what you can do to offset your risk is to require a larger security deposit. It's the most simple way to do it.

Felipe:
I like that.

Lucas:
Just say, “Hey listen, normally the security deposit is on month’s rent, but in this situation I’m going to need two months rent.” They can’t really argue with you, because they don’t have the other things that other tenants do. You’re not discrimination because you’re trying to find a way around the fact that you’re not able to qualify them with the other means.

Felipe:
Traditionally.

Lucas:
Exactly. If that’s not good enough, or if you can’t do that for some reason, then you can just say, “Hey listen, I need you to pay three months up front.” Just prepay that rent. That also is sometimes a law in your state, if there are regulations on how much rent you can pay up front. I had a guy who I couldn’t qualify, this was a different guy. He wasn’t a foreign exchange student, but different guy. Couldn’t qualify him because he didn’t have a job, but he had a ton of money in the bank. I mean, it was weird. He was a trust fund baby, he just had money, but no job. I said, “All right, well I have no guarantee of your income, so why don’t you just pay six months up front?” He was like, “Sure.” Wrote a check, and it was easy. I was okay with that.

Ashley:
Yeah. For New York State I know that you cannot ask for a security deposit larger than one month’s rent. Once again, there’s so many different ways that you could screen someone, and what you can qualify for them or not, or different ways to get them approved, by having a cosigner, or getting them a security deposit. Just make sure they fit within your local laws.

Lucas:
Yeah.

Ashley:
We actually have a question for you, it is, what system do you find the most effective for a full background check? Credit, criminal history. This is from Aisha on Facebook.

Lucas:
Hey Aisha. Thanks for chiming in. I like Cozy. I mentioned earlier I’ve used Cozy. I like it because it gets into a social security trace. It gets into a national and county criminal history. Then it gets into a sex offender watch list and the national terrorist watch list. The two biggest things you’re looking for is a national and county criminal history, that’s for me the biggest thing.

Lucas:
Sex offender, I feel for those who have paid their time and gotten out, or done whatever for sex offense, but it is critical too sometimes to know if they are or they’re not, because if your property is within a certain amount of distance from a school, there are laws against them living there. You kind of need to know that. I mean, if you’re not near a school or some other places where lots of kids hang out, if it is a child situation, then you do have to worry about it, but otherwise you don’t. It’s important to just know those things. I use Cozy, but as long as they’re checking national and county criminal, I think those are the two big things.

Ashley:
That’s great. I didn’t even realize that the different background checks could just exclude local or county. That’s a great tip.

Lucas:
One more thing too. It is tricky sometimes with counties, because you have to know if your county participates in a lot of online systems, because some counties, I think up until recently, I mean we’re talking about really recently. San Diego County in California didn’t report their judgments to anybody.

Ashley:
Wow.

Lucas:
If you wanted a local county history-

Felipe:
That’s interesting.

Lucas:
You had to go down to the courthouse and-

Ashley:
Pull it yourself. Yeah.

Lucas:
Get some lady behind the counter, or some guy to walk down to the file cabinet and pull it for you. You’ve just got to watch out sometimes.

Ashley:
Yeah. I just want to add to that software real quick. The AppFolio and Buildium are two other softwares too that are property management software that have the tenant screening built in. Buildium I believe is like Cozy, where it emails the applicant directly, and then they pay the fee, they fill in their information, and then the credit report is sent back to you. Whereas AppFolio, they actually set you up as, I don't know the right terminology, but they come and do an inspection of your office and do a background credit check on you, and then you actually get to run the screening directly. Those are two different ones.

Lucas:
Yeah. Those are called hard inquiries. Those are where you become a credit reporting system. That’s great, because then you can pull credit reports at will, but you’re no different than a car leasing office, or a mortgage company, they’re just pulling credit reports all the time. The downside of that is that you have to meet certain federal regulations. You have to have a locking file cabinet. You have to have a locking door. You have to have all these special things, and if you’re storing data there, that’s a liability as well.

Ashley:
Yeah, and they come and they take pictures, and you have to document everything. Then I think it’s every two years you have to get reinspected, or if you change offices, or if you change whoever’s in control of that.

Lucas:
Is that what you do?

Ashley:
Yes. Yeah, we did do that for the investor that I worked for, but I did find that Buildium, when you send the email, I found that you really weeded through people who are actually motivated, because they had to take more steps on their end to get that credit and background check done. Where with the AppFolio one, I could just push a button and it would be done, but we got a bunch of people who never followed up, or never came back to us because they didn’t care and they weren’t true applicants. It was a waste of time and money to run that credit background check.

Lucas:
A lot of the times with the soft inquiries, where the system emails the tenant to do the inquiry, they walk into the whole process, so most of the time they do complete it, but they also have the option to pay for it themselves. If you don’t want to front the money, you can do it through the soft inquiry way, and that will force them to pay for it.

Ashley:
Right.

Lucas:
That oftentimes is a screening method in itself, you’re right. Because if they don’t want to pay the 40 bucks, then they’re certainly not going to pay rent.

Ashley:
Yeah. Here’s another disclaimer from legal actually today, is that some states might have limits on how much you can actually charge as an application fee, so make sure you are aware of that too.

Lucas:
That’s right. Some of them are like 20 bucks. I mean, it’s really low, but I think for the most part they tend to be $50 or above.

Ashley:
Yeah. Felipe, do you use any screening software?

Felipe:
Nope. All of my tenants … That’s why I’m letting Ashley run the show today. Man, she’s really good with this stuff. Disclaimer, don’t take my advice guys. All of my tenants I actually screen a little different, because most of my tenants are construction workers who are brought up to the State of Tennessee to work from Texas, and I meet their boss, who he’s like, “Hey, I’m bringing 40 guys to I have a three year contract that I have to build this skyscraper.” Basically I have the same tenants for three years. He’s like, “They’re my crew. I’m not hiring guys here. I’m bringing up these construction guys with me. I don’t have time to retrain. I have a $2 million contract, or whatever it is, and I have all these guys that I have to house.”

Felipe:
He’ll rent a whole hotel or whatever the case may be until I can put them in my rooms, or I have availability, and then that’s when I go out and buy a house, convert it, rent it to the guys. Rinse, wash, repeat. I know that I have tenants for at least three years, and I know the boss. Then the boss is like, “This is payday, this is all this.”

Felipe:
Mine’s a little bit different. Should I still be doing what Lucas is saying? 100% yes, absolutely, but I know that most of these guys are here by themselves, their families are back home. I know exactly how much they’re making because their boss says, “Hey, they have a $1000 a month stipend.” I’m charging them 500 bucks, they’re making $500 based on their contract. They’re specialty workers, so they’re not just labor guys. Most of them are the ones that drive a crane, or have the license to drive a certain equipment on the job site. My tenants are a little different in that. I just don’t. I used to when I had a six unit apartment complex, a small one, but not anymore. Most of my guys are just, I just talk to the boss and I know him.

Lucas:
That you for doing that. That’s awesome. The fact that you could actually go to their boss if something happens where they don’t pay, and you can just tell the boss, “Hey, Johnny over here’s having trouble.” That’s all the insurance you really need, to be honest.

Ashley:
Right. Well Lucas, let’s talk about that. How important are references for you?

Lucas:
Well, if they’re listing a reference that’s either a family member or a coworker, I don’t actually care that much, because they’re going to give me a good reference. I already know what they’re going to say, so I don’t even bother. The references I care about are former landlords or property managers, or their supervisor. Those are the only real two references I care about. I take those heavily. I mean if they say, “Hey, they’re a great worker. They show up on time, and they always do what they’re told and do it well.” Then that’s great. That’s all I need, because they’ve got more of a risk with losing their job than they do at my place. If they’re going to treat their job well, then I think they’re going to treat my place well too.

Felipe:
Hey Lucas, what’s the biggest shift change that you’ve seen right now with tenants, and what have you implemented during this coronavirus epidemic that we’re going through? What has been the biggest change that you have seen in tenants, and what have you guys implemented right now? I’ll let you kind of take that on. What are you guys doing?

Lucas:
Yeah. It’s been a lot more virtual tours. Actual one on one virtual tours, not just posting a YouTube video of your place. Virtual tours, and then a lot of FaceTime videos. I will do that, and what I’ve seen actually is that tenants will come to me and say after the fact they’ll say, “Hey, that was so great. Thank you. I’ve been having a hard time finding anyone to show me a place.” Or just the fact that I said, “Hey, can we do a video chat real quick and I’ll just do a prescreen for 10 minutes or five minutes?” They say because I took that initiative, it instantly builds trust on me as a landlord, that I’m looking out for them. I’m honoring the law and the orders to stay at home. I’m not asking them to do anything uncomfortable. Because if they start feeling uncomfortable, and then they associate that with your property, then they’re going to have a lot more resistance to signing a lease, which is not what I want.

Felipe:
What about tenants who aren’t able to pay right now, and that are going through hardships?

Lucas:
After they move in, after they sign the lease, if they can’t pay rent, then let’s say they lose their job. There are a lot of people losing internships, especially lower jobs that don’t necessarily require, internships or whatever that just can come and go. Sometimes they’re ending early. I’ve got a lot of interns on Capitol Hill that are working for me, and I just tell them, “Hey listen …” I wait for them to come to me, because I don’t want to necessarily volunteer the fact that they can skip rent, or delay, or whatever. I wait til they tell me there’s a problem. I do check in with them and I say, “Hey, how’s it going at work?” I look for any red flags.

Lucas:
First and foremost i say, “Well, how about we go to a weekly schedule? Instead of you paying monthly, why don’t you pay weekly? Would that make it easier? Would that smaller, more digestible chunks, can we try that?”

Ashley:
Kind of helps them budget you think?

Lucas:
Right, because a huge chunk once a month is oftentimes really hard, but if they can do four smaller chunks, then maybe they'll pay better. If they really just don't have the money because they're trying to buy food, and luckily I haven't had this, but I can say to them, "Hey, why don't we just delay for two weeks or something?" I'll try to minimize it as much as possible, and say, "Listen, I'll basically give you an interest free loan for two weeks. You don't have to pay." After all, usually most mortgages aren't late until the 15th of the month, so you do have kind of a cushion built in. I'll try to get that rent money before the 15th, just to keep things square.

Lucas:
If it goes over, I tell them, “Hey listen, we’ve got to talk about this.” If you’ve missed the deadline we’ve set, I might have to … We could file for eviction. They probably won’t hear the eviction for months, and months, and months, but I might need to go down that road or get an attorney involved. Worst case scenario, if it’s only been a month or two, I can take it out of their deposit at the end of the lease. Get them out as fast as I can. I am so sorry that you lost your job, but you still need to pay rent, and I’ll try to make accommodations as best I can to help you.

Felipe:
It sounds like you are giving options though. You’re creating different systems and different options to where you want to see your tenants succeed and not fail. Hey, I’m going to flex this way. What about weekly? Biweekly? It sounds like you’re giving them options, and I think that’s crucial to even rookie landlords that are like, “Oh my gosh, what if my tenants can’t pay?” Okay, create a system if they can’t pay. It’s better to have heads in beds than to try to kick people out. It sounds like your last resort was to, if you have to evict. Even watching you say that, it sounded like it even hurt you personally, because it seems like you’re trying to create a bunch of ways to help them not to do that. You even kind of struggled just to even get it out. That’s awesome.

Lucas:
I mean, they’re people too. They’re just like me. I tend to have a good working relationship with my tenants, I strive for that. It’s a business relationship, and I want their family to succeed. Because if they succeed, I succeed. They’re my customers. Even before I get to eviction or even talking about eviction, I’ll suggest also that maybe they go borrow money from family. Now they usually will cringe at that, because they don’t want to seem like they can’t pay their bills. If that’s not an option, I’ll tell them, “Hey listen, go borrow on a credit card. Put it on a credit card, and through various softwares you can pay rent with a credit card, and you can delay it sometimes up to 90 days, and it’s fine.” I know credit cards are even giving out credit cards now, so if you don’t have one, you can even go get one and have it in your hand in a week, and then you can pay your rent. There’s certainly other options.

Ashley:
What do you think about cash for keys? For anyone listening that doesn’t know what this is, this would be if your resident isn’t paying, you don’t want to go through an eviction, and say it costs you $1000 to do an eviction from start to end, plus you still don’t have their back rent. Cash for keys is when you offer them say, “Hey, you move out by this Sunday, and I’ll give you 500 bucks, and you give me the keys.” What are your thoughts on that?

Lucas:
I love it. It’s oftentimes the best solution to a bad situation. If they can’t pay rent, you don’t want them in your place, but you don’t want to help them fail. Oftentimes that cash that you give them, which depending on your location 500 might be enough, but in other locations it might need to be $1000 or $1500. Most evictions cost landlords upwards of $5000 in legal fees and back rent that you’re never going to collect. If you can prevent that, I mean heck, $1500 seems like a steal. You give them that $1500 or $500, and that becomes their security deposit for the next place. That enables them to leave. Otherwise, they can’t. They physically and monetarily can’t leave, and so you’re giving them the means to get out of your hair, which I think it’s a great solution. Everybody usually is really happy with the solution.

Ashley:
Unfortunately, it just takes a little bit of your own pride that you’re handing them money when they owe you money. That is the hardest part, getting rid of the emotion side of it.

Felipe:
I have found though that cash for keys 80% of the time, like Lucas was saying, has been very successful, in that use the 500 bucks for rent a small U-Haul, get your stuff, put the deposit on your next place, and you don’t have an eviction on your record, and you saved me time and money. I’m giving you some money. I already know you’re in a hardship. I don’t want to evict you. Take half of what I’m going to use anyways to get you out, and maybe that’s an extra check on your end, or whatever the case may be. Yeah, I think cash for keys is great.

Felipe:
Lucas, thank you so much. We’re actually going to be bringing in a rookie landlord, who he’ll tell his story, but basically he’s looking to find one more tenant. His name is Andres. Andres has his mic, there we go Andres. Andres, introduce yourself, and here’s Lucas, and ask your question man. What do you got?

Andreas:
Okay. Awesome. Well, thank you so much guys for letting me talk here. My name is Andres Bustamante. I am here in Austin, and I recently acquired my first house, and I’m going to be house hacking that.

Ashley:
Congratulations.

Lucas:
That’s awesome.

Andreas:
Thank you so much. I appreciate it. I’m very excited. I already have two tenants that have signed a contract for the house. It’s a four bedroom by three and a half bathrooms. I’m just a little worried about getting the third tenant right now. I know you mentioned guidelines for finding tenants and all. Due to the coronavirus right now, how strict should I be now? Should I be a little more strict, or not?

Lucas:
Well, vacancy is the number one killer for rental income. Vacancy is the thing that’s going to hurt you the most, but if you choose a bad tenant, that could easily turn into two, or three, or four months of unpaid rent. You have to be very careful. It’s a tough balance.

Lucas:
With the coronavirus I have found, now I don’t live where you live, and I don’t know your tenants, but I’ve found that the coronavirus has not affected somebody’s ability to qualify from a historical standpoint. It doesn’t change their credit report. It doesn’t change their background checks. The only thing it potentially changes is that they lose their income. You have to look at that carefully. If they do have any sort of income or savings, that might be enough. Try to keep with your two to three times of the rent in income for a qualification, but lower it potentially.

Lucas:
I think the real key here is whatever you choose, whatever your standards are, even if you lower those standards a little bit, then keep it the same for everybody. You can’t discriminate by giving somebody a higher bar to hit than somebody else. If you’re nervous about a tenant who might not have normally qualified because you’re having a hard time, another option is just to make it a short term lease. If you want to kind of feel it out, just qualify somebody that maybe wouldn’t normally qualify, if you’re willing to lower your standards, and just say, “Hey, we’re going to do a three month trial. It’s a three month lease, we’ll reevaluate it then, and if everything’s still good and you’ve paid your rent on time, then we’ll do another year.” That way there’s not that much risk to you.

Andreas:
Gotcha. Thank you so much. Another question I have, do you happen to do any concessions now that we’re dealing with everything that’s going on? Are there any concessions you recommend doing to where the long run, maybe two year lease or something like that?

Lucas:
I think this is going to be interesting. I tend to do concessions that also benefit me. Concessions that tenants love but it is also benefiting me in the fact that if you move in, I’ll buy you a new dishwasher. I’ll put in a new dishwasher, even if the other one hasn’t hit its end of life, perhaps it will in the next couple years, and so I’m like, well I’m going to be able to keep this dishwasher for a long time after that. Therefore, it feels like they’re getting a new stainless steel appliance or something, but they’re really also helping me.

Lucas:
I tend to avoid any sort of monetary concession where I’m like, you don’t have to pay a security deposit. That’s just a little scary to me. What I would do instead is say, “Maybe we’ll do a security deposit over three months.” We’ll split it up over three months and make it more digestible so that you won’t have a problem paying it, but I still get my full deposit eventually. If you miss those deadlines in paying it, then that’s grounds for lease termination.

Lucas:
No, I don’t want to ever give anybody freebies necessarily, because that sets a bad precedent. I want to make sure that they understand that this is a business relationship, I expect things to get paid, and I want any sort of concession to also benefit me down the road.

Felipe:
Lucas, one of the things that a lot of my tenants try to do, and maybe you can help us out during this time as well, is I get the question of, well hey Felipe, the microwave is going out, or it’s not as good as when I first got here, or something. How about once that gets fixed, then we pay rent or something? My initial response is always, look everything in the house is negotiable and fixable except rent. Rent is the nonnegotiable in all of this. What would you say to someone that had tenants that are starting to get into that during this epidemic?

Lucas:
Right. That is actually really common. There are only a handful of reasons legally, and this isn’t legal advice, but there are regulations around the handful of reasons why a tenant can withhold rent. It is usually, well almost exclusively around things that affect habitability. If the heater’s broken and it’s the middle of winter, and they’re going to freeze to death, that’s a reason not to pay rent.

Felipe:
Right.

Lucas:
Maybe one of the panes of glass in a window has a slight crack in it, well that doesn’t actually affect habitability. They just think it’s annoying because there’s a crack in their window. You can get around to fixing it when you need to fix it. It doesn’t give them the right to withhold rent. I think there is this assumption, especially in larger cities, where it’s if the rental isn’t perfect to my standards, then I can withhold rent. That is just flat out wrong. It’s important for you as a landlord to set that expectation when it comes up and squash that right away and say, “Listen, you can’t withhold rent for any reason other than habitability. If you do, I’m taking you to court for it.”

Felipe:
Yeah. Thanks for answering that Lucas. Andres, go ahead. Sorry man. I didn’t mean to cut you off there.

Andreas:
No, you’re good. I am in a college town here in Austin, and I was wondering, do you usually deal with any students? Say for example, would you have a guarantor for them?

Lucas:
Yes, absolutely. If they qualify among my other standards, income, and usually students don't have a credit report. They just don't have enough data to have an actual report, so there's usually no results there. They usually don't have a rap sheet either. If they have enough income, then it's not a big deal, but usually students don't. They're paying their university bills with student loans, and they don't have a job. They're a full time student. Absolutely almost 100% of the time I require a cosigner who does, combined with the student, does meet those standard requirements of two to three times the monthly rent in income. Then they also need to have a good credit report.

Lucas:
I don’t however require cosigners to have any sort of, I don’t care if they have an eviction history or a violent criminal past. I just don’t care about that because they’re not living in the property. They’re not going to be an occupant. It’s just the tenant that I care about for that. From a financial standpoint, the cosigner absolutely has to meet the standards.

Andreas:
Okay. Awesome. One other question I had. What if two people apply for one unit, I mean they’re going to be living together, do you take two app fees in the same room?

Felipe:
Good question.

Lucas:
Great question. Yeah, so I do. I use software that lets them pay for it directly. They also get a copy of the credit report and background check that they purchase essentially, that I get to see and they get to see, so they’re getting something for their money. It’s not like it just goes into the abyss, which I’ve been in that situation where I’ve applied on an apartment complex and I never get to see anything that I paid for. Yes, I mean each person has a credit report, each person has their own background history, so there’s going to be a separate fee for all that data, and I make each one of them pay it.

Andreas:
Does that stay the same, the security deposit for both people if it’s for one room?

Lucas:
If it’s under one lease, you mentioned you rent to college students, I rent to some college students and some young professionals. If the house is rented as one giant lease, one single lease with a bunch of tenants who are jointly and separately liable, then it is just one household income, it is just one security deposit. If you’re renting each individual room with a different lease, then yes, each one needs to have its own security deposit.

Felipe:
Hey Lucas, how do you handle the situation, or how would you tell our rookies to handle the situation … I know because when I rented in a college town this would happen, where they would have a friend that’s staying overnight, and then stayed a week, and then stayed two weeks.

Lucas:
They’re living there for sure.

Felipe:
Then it’s like, wait a minute. Run that one.

Lucas:
Yeah. That’s actually pretty common with younger people. I think that it just needs to be very clear in the lease. Obviously guests are allowed. Guests are part of the implied covenant of enjoyment, in that they can enjoy the property, and that includes having friends over. What I put in my lease, and you’re free to do whatever you want, but my lease says that they can only, the same person, that same guest, can only spend the night 14 days in any six month period. Can I regulate that? Absolutely not. I have no idea. I’m never going to know if that’s true or not, unless it gets absurd.

Lucas:
I think to have that stated in your lease just means that your mother in law can come and stay, and if it truly is a mother in law coming to help with taking care of the birth of a child or something, I don’t care. If it’s a boyfriend or a girlfriend who ends up living there on the couch because they don’t have anywhere else to live, that’s a big deal. That 14 days out of any given rolling six month period is critical to where if it becomes a problem, you can point to that in the lease and say, “Get this person out of the place. I don’t want to see them here again, or at least sleeping here again, or I’m going to have to terminate the lease for a violation.”

Felipe:
You can go back to the lease as your saving grace. You’re not the bad guy anymore. Hey, we both agreed on these terms, it was in your lease, there you go.

Lucas:
Exactly.

Ashley:
Well great questions Andres. Thanks for joining us. Hopefully Lucas had some helpful information for you.

Andreas:
For sure he did. Thank you guys so much. I really appreciate it.

Ashley:
Yeah, and good luck on getting that last bedroom filled. Lucas, can you tell everyone where they can find out some more information about you? I believe you wrote a book on tenant screening, is that correct?

Lucas:
I did, yeah. It’s more of a guide. I am the founder of landlordology.com, it’s an ultimate resource website for independent landlords who just want to learn to be better. You can go check that out. It has everything you would need, including information on your state laws regarding everything we just talked about, and it links to the actual statutes so you can verify it for yourself that it’s real. I have a bunch of guides there too that I wrote. Landlordology, in full disclosure, is part of Cozy. I work at Cozy, I use Cozy, I would use Cozy even if I didn’t work there, which is also part of Apartments.com. You can check out all three of those places. I’m all there, and if you need to contact me, you can find my information on those sites.

Ashley:
You know what Lucas? It’s just hitting me now, but I think we actually met before.

Lucas:
Oh, okay.

Ashley:
Were you at the FinCon conference?

Lucas:
I was.

Ashley:
Yeah. You gave me an Apartments.com water bottle.

Lucas:
That’s awesome.

Felipe:
Ashley, oh my god.

Ashley:
I remember because it was actually Felipe, it was me and your mastermind partner Diego standing at the table, and Lucas said, “You know what? Let me go behind the table and get you guys one of the good water bottles.”

Lucas:
They are good water bottles.

Ashley:
They are, yes. I use mine all the time.

Felipe:
I was talking to Diego before this call, that I was going to have the honor to talk to Lucas, and he was like, “Oh, I know Lucas from FinCon.” I was like, “Diego, you know everyone.” He was like, “Yeah, I met him at FinCon.” I don’t think he had a water bottle. I’m going to tell him Ashley, maybe he did.

Ashley:
No, he did, because we got it at the same time.

Felipe:
Oh, he did?

Ashley:
Because me and him were just talking about that.

Felipe:
He’s like, “Oh yeah, I’ve met Lucas before. I’m excited to listen to the podcast.”

Lucas:
We’re a tight knit group at FinCon for sure.

Ashley:
Yeah.

Felipe:
There we go.

Ashley:
Bigger Pockets also has an ultimate guide to tenant screening, so make sure you guys check out both. You can find that at biggerpockets.com/tenant screening. Make sure you join our Facebook group, Real Estate Rookie. If you guys have any more questions for Lucas, you can post them in there and he’ll try and answer them for you if he can. Do you want to wrap us up Felipe?

Felipe:
Yeah, absolutely. Lucas, one more time, do you have social media, where can people find you there?

Lucas:
Yeah, on Facebook and on Instagram. Just check out landlordology.com, and you’ll find all those social channels right there.

Felipe:
Awesome. Lucas, thank you so much for coming on and adding a ton of value. I think at times I stood still and was just listening and forgot that I was the host. I was just digging all this in myself. Seriously man, these are the shows that I love, where even I sit down and I’m just soaking it all in, trying to get as much knowledge as I can. I know that with everything going on we’re hoping that everyone can learn from what’s going on and come out a better landlord on the other side. Seriously, thank you so much for coming on and talking to us.

Ashley:
Yeah. Thank you Lucas.

Lucas:
Yeah, I just want to say what you’re doing here with this rookie podcast is going to be essential, and you’re obviously seeing benefits now. For real you’re going to see the benefits in five to ten years when these rookies now have massive portfolios and they’re changing the way renting is working in the United States. What you’re doing now is just the seed, so thank you very much.

Ashley:
Yeah. Thanks Lucas.

Felipe:
Thanks Lucas.

Watch the Podcast Here

In This Episode We Cover:

  • The importance of pre-screening over the phone
  • Online tools to run background and credit checks
  • Why you should always check an applicant’s social media profiles
  • The income-to-rent ratio Lucas uses to qualify tenants
  • Why gathering social security numbers is overrated
  • Photo ID checks
  • Where to find classes on how to be a fair, ethical landlord
  • How to follow fair housing laws
  • What Lucas thinks of “cash for keys
  • Whether to accept pre-payment of rent
  • Co-signing/guarantor arrangements when a tenant has no income
  • How to show properties during the COVID-19 quarantine
  • Handling late and non-payment of rent
  • And SO much more!

Links from the Show

Tweetable Topics:

  • “Most evictions cost landlords upwards of $5K in legal fees and back rent that you’re never going to collect.” (Tweet This!)
  • “Vacancy is the number one killer for rental income.” (Tweet This!)

Connect with Lucas

Ready to go take action? Every Wednesday, the Real Estate Rookie Podcast will arm you with tips, tools, and inspiration to help you launch your real estate investing career. Hosts Ashley Kehr and F...
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    Harold Cherrix Investor from Chincoteague Island, Virginia
    Replied 5 months ago
    You didn't add the websites of the tools discussed in this episode, please add them.
    Harold Cherrix Investor from Chincoteague Island, Virginia
    Replied 5 months ago
    Such as Kozi,Vimeo,Buildeium...
    Kevin Leahy Rental Property Investor from Washington, DC
    Replied 5 months ago
    These have been added. Thanks
    Mike Nelson Investor from Oak Park, Illinois
    Replied 5 months ago
    This podcast is not just for rookies. I have been in real estate part time for a long. This is a good refresher, and reminded me of a few things I need to focus on. Management is one of the keys to real estate, and selecting the right tenant is one of the keys to management. Also entertaining.
    Nathaniel Davis
    Replied 1 day ago
    That might be one of the best ones i've watched so far. I got pages of information from this one. So happy i found this podcast!!!