Hey guys, looking for some advice. I just closed on my first rental last week. The sellers move out in 3 days. My wife and I went ahead and posted the house on the community facebook page a few hours ago and got tons of responses back. I have already set up 3 showings and probably feel like I can set up another 4 or 5. My question is how do you fairly choose your tenants? I understand that the background check, etc.... may cull out a few of them, but all things being equal do you guys go by feel or priority based on the order they contacted you? Would love to hear any advice. Thanks in advance.
1. Make sure you are familiar with Fed/state laws on discrimination. Document everything. If you pass over someone that makes an accusation, you will have your documentation to prove how you arrived at your choice.
2. I suggest having a tenant requirement paper you can pass out to all at your showings. I have one I made which talks about credit history/scores, pets, smoking, evictions, criminal history, income requirements, etc. Passing these out can help weed out those that cannot be accepted.
3. I charge a hefty non-refundable fee of $75 per applicant. I take all their checks at the same time. When I choose the 1st applicant to run, I deposit that check. If they are approved I return the other checks. This fee will help weed out people that think they can deceive you until you run your checks.
4. I don't like to accept more than 3-4 applications. Once I have that many I usually tell people I have several apps and that they can call me in a day or two to see if one was accepted.
Great feedback.
Thanks @Cesar Torres I am going to do that right now.
1. Make sure you are familiar with Fed/state laws on discrimination. Document everything. If you pass over someone that makes an accusation, you will have your documentation to prove how you arrived at your choice.
2. I suggest having a tenant requirement paper you can pass out to all at your showings. I have one I made which talks about credit history/scores, pets, smoking, evictions, criminal history, income requirements, etc. Passing these out can help weed out those that cannot be accepted.
3. I charge a hefty non-refundable fee of $75 per applicant. I take all their checks at the same time. When I choose the 1st applicant to run, I deposit that check. If they are approved I return the other checks. This fee will help weed out people that think they can deceive you until you run your checks.
4. I don't like to accept more than 3-4 applications. Once I have that many I usually tell people I have several apps and that they can call me in a day or two to see if one was accepted.
Thanks @John Thedford Great info
@Wes Shaw, Congrats on your first rental! John gave an excellent suggestion about putting your rental criteria in writing and passing it out or attaching it to each rental application. For example, you want to look at these three things to ensure your rent gets paid in full and on time:
1. Credit history (no late pays, collections, judgments, outstanding debts of $1,000 or more and a score of at least 625 or greater.
2. Income/rent ratio should be a minimum of 2.5 times rent but 3 is better due to taxes being taken out.
3. Rental history. Absolutely, no evictions. Query the prior landlord about rental history (late payments? 3 day notices issued? Condition of the place after tenant left?)
If credit is marginal or has things like foreclosure, student loan default or medical collections, you may want to overlook that if they have a very strong and stable income (4 X income to rent) and always paid rent on time every time and were not a nuisance to the neighbors and honored the terms of their lease.
You do these things and you have a good chance of your first tenancy going smooth. Look at their financials before considering the person. Doing so will help you stick with what's important - their ability to pay the rent.
Another tip - take a Fair Housing class in your area so you know the laws and your rights better than your tenants do.
Good luck!
I love the Nolo books, and they have one for TX:
http://www.nolo.com/products/every-texas-landlords...
You should know that you will easily receive 10 applications that you should not even consider for every 1 you might want to consider.
You need to write out your criteria and stick to it, if you're going to do your own screening.
I suggest, though, since you're already going for it, and you are not experienced, that you use SmartMove and just go by their recommendation.
@Wes Shaw, Congrats! That's a big step, and I'm sure the quick influx of interested parties only solidifies your decision. Be sure to keep us posted on how the rental works out for you over time.
@Anthony Lee, What's the benefit of the additional interest?
@Andrew Glenn an additional interest simply allows the party listed as such to be notified in the event the policy is canceled or lapsed.
For example:
Generally leases will, or should, require that a tenant carry a renters insurance policy as part of the lease. Therefor the landlord has an interest the policy and must be able to verify that coverage is in place. If the landlord is not listed as an additional interest, there is no way of knowing for certain whether the policy is in force or not.
Definitely establish your criteria and stick to it. The two most important, in my opinion, are verifiable income (>3x rent), and references. If you can actually speak to a former or current landlord, they will tell you if the tenant is good or not. We had an applicant give us his current landlord's contact info. When we called the landlord, he told us the tenant was 2 months behind on rent. Made that decision easy.
Good luck.
Thanks for the feedback everyone. This has helped tremendously.
@Wade Sikkink Based on a comment above, when I show potential residents the house, I am going to have a handout which outlines my criteria to weed out potential tenants that aren't ideal tenants for me. These include no smoking, renters insurance is required, I do background/credit/rental history checks, etc..... in that criteria should I include the >3x rent? In my head I was using that as a criteria, but didn't know if I should be that open about it with the tenants right off the bat.
@Wes Shaw You don't have to share any of the criteria. It will only become an issue when you deny someone based on that criteria, then they will ask you about it. We have denied tenants based on that criteria before and had to tell them that they don't make enough money to rent this apartment, then we explain our criteria is 3x the monthly rent. If you don't put that criteria on your hand out, then deny someone over it, it will be an uncomfortable conversation when you explain to them the sheet with the criteria you gave them didn't include ALL the criteria.
Another tip, we don't schedule any showings until we have received a completed application from a prospective tenant. We don't want to waste our time showing apartments to people that won't qualify, or that are just kicking the tires. We want serious applicants only. You can waste a lot of time showing units to people that won't qualify, or aren't really serious, just nosy.
Awesome @Wade Sikkink Thanks for the additional feedback. I think since this is my first rental and I only live 1 mile from the rental that I will not shun prospective clients who may not qualify or are just nosy. However, I am capping the number of showings I am doing to about 8 this weekend. Then I can set up more if I don't get a tenant out of the deal. I love the idea of showing only to qualifying applicants, but I am so new at this I don't think it will hurt me to meet as many people as possible just to learn as much as I can about the process, dealing with potential tenants, etc.... However I will definitely being employing that tactic down the line. Thanks again.
First you need to setup some rental criteria as stated by everyone above. Below are some of the common criteria to use:
1. Gross family income is 3X the rent.
2. No evictions in the past 5 years.
3. Stable job history.
4. Credit check or min credit score.
5. Get as much of a deposit as your state allows.
Hope this helps.
That does help. Thanks @Paul Amegatcher
Wes - you're getting tons of great feedback here! One thing to double check: is your rent appropriate for the market? Sometimes getting a TON of applications on the first day means you want to increase your rent a bit. Or not - some folks like having a lot of demand so they have a lot of candidates to choose from.
One last thing: make sure it's in move-in-ready when you show it. Seems obvious, I know, but some folks don't , and it makes all the difference in the world.
@Jason V. Thanks for the feedback. The more feedback I get the better so keep it coming.
Here's where we are at with the rental. We live in a small town (only a town of 1300 with 2 other small towns of the same size within 5 miles / Dallas-Ft. Worth area is 20 miles away). It is lower to lower middle class. We felt comfortable based on all factors asking $1100 per month which is at the very high end of the rental market in the area.
Well we posted it yesterday and had to pull the ad because the responses were overwhelming and already set up 8 showings for this weekend. The one thing we knew going in was that there are literally no rentals in the area so some type of demand would be there, but again being at the high end of the market we didn't expect this much.
We haven't vetted/received applications from anyone so none of these potential applicants may be any good. Time will tell, but I (and my realtor who owns rentals) now feel based on response along that I have shorted myself $50-$100/month in rent. I feel like not knowing the applicants these 8 showings will turn into plus we have already advertised the price, it would be in bad taste to raise the price at this point. Although I would be lying if I said I wasn't tempted.
Sorry for the long story. Thanks again for the feedback.
Sounds like you have a good rental market. Don't give the house away. Don't overprice either. Check with some property management companies to get an idea of fair market rents.
Wes,
The answers are all good. But I am going to chime in my 2 cents worth as well. First of all the sheer numbers applying for the rental suggests a rental market but you may have priced your rental too low. I suggest you use Rentometer.com to see what the comps are in your area. Then charge a median rent. Also collect an application fee from each applicant. I always ask for cash but I see that at least one guy took checks so that they could be refunded if he found a tenant and did not screen the rest off the applicants. Tenant screening is a must. You need a full credit check and full criminal check. Then from the application, call to verify employment history and income. Use references and also previous landlords to check for "issues". Be sure to ask questions that only that landlord could answer to avoid thinking that you are calling a landlord when you are really calling a friend of the applicant's who is trying to "help".
I am going to also suggest that you use a property management software to help you get organized. Of course I am partial to my company Smart Property Systems, but you will find that there are many out there. Using software will give you help with collecting rent and keeping your books as well as show up as being professional. Getting rent paid when you look like you know what you are doing (even if you are just starting out) is much easier than if you look uncertain or disorganized. Hope this helps.
Wes, you also need to have a policy on how applications are processed. When the market is hot you may have multiple applications from equally qualified tenants. People could get upset if they think you are discriminating against them. To avoid that tell them how you process applications. We do it in the order they are received.
Good luck with your first rental!
A lot of good suggestions here which I also follow, although with some variations (I look for 2.5x the rent in verifiable income, for example).
I make it a point to note that the fee I collect is used to run the credit, criminal, and eviction check - in my state, I cannot collect more than my out-of-pocket costs to run the checks. However, a tenant putting forth cash helps weed out those who know they have an eviction in their history so I don't have to spend my time with them.
You can also discourage people from applying by posting your requirements ("verifiable income of 2.5x the monthly rent", "no prior evictions"), rules (eg: "no pets", "no smoking on the property", "section 8 not accepted"), and details of the property ("street parking", "no laundry hookups, laundromat 2 blocks away") so you don't end up spending time only to find out something won't be compatible with them.
Another optimization which may help - do an open house rather than an individual showing. A few reasons for this:
a: It makes the scheduling of your showing easier. You can put aside an hour a couple times a week and communicate that to the prospects, they can choose from times convenient to you.
b: when a prospect visits an open house and sees a crowd of others, it gives them a sense of competition (more urgency to get their application in, crowd validation that it is a good place to live).
c: safety. The person showing the place is less likely to be assaulted if there are other people around (yes, it happens, and not just in warzones).
d: it prevents you from hovering over prospective tenants and making them feel uncomfortable.
e: doing individual showings may work when you have one unit, but it doesn't scale.
Cast your net wide, allow people to self-select out, optimize your showings.
I generally do a serious search on them (Facebook and Linkedin are biggies) and the truth is, I just trust my instinct. Of course credit checks and financial situation etc are a big factor, but at the end of the day it's someone you have to trust enough to let in your home - literally! I try building a positive relationships with my tenants and am a big believer in using existing renters to recommend friends. Maybe try asking your immediate network to share the news about your available listing?
Lot's of good advice above. I don't have much more to add except don't make the newbie mistake of letting these people waste your time. You'll develop a system that works for you, but make sure you are firm, fair and consistent.
When I went through my first rental, I was very green. I could not believe how many people lie and don't show up for appointments. Never again! Pre-screening is your friend.
Credit and background search each adult tenant that will be living in the unit. www.tenantbackgroundsearch.com has worked for me with several options to choose from.
@Wes Shaw make sure you have clearly defined rental criteria and put it in writing. I hand this to the potential tenant before they apply so there are no surprises. Run a full set of screens (credit, employment, criminal, evictions, etc) and call all their references (don't call the number they list, Google the company and ask for HR).
I am pretty stringent on my requirements. I'd rather take a few more days than be saddled with a sub par tenant. I do have a "second chance" program that allows tenants that don't meet my standards to rent if they pay an additional deposit, but I don't allow this for violent felons or people who have been evicted or skipped out in the last 5 years.
The biggest mistake you can make is to listen to a sob story or feel sorry for them. You will be miserable dealing with that type of tenant!