Set the Stage Upfront to Eliminate the Drama!

This post is Part Three of Begin with the End in Mind.  As real estate investors, we are in the rental business to make money. Period.  If you are an investor, you need your property to cash flow for you and the only way for that to happen is for your tenant buyers to pay you every single month ON TIME  and IN FULL!

 If you have invested in real estate for any length of time, you know that renters can have issues.  You can be kind and compassionate but remember, you are not a real estate missionary! 

Tenant-buyers need to understand that just like like expect to be paid on time and in full when they go to work, you as the owner of the property expect the same thing for their quiet enjoyment of the rental unit.  Do your best to not disclose that you are the owner of the property. Present yourself as the property manager so that you can do the "good cop, bad cop" routine if there is ever a problem with a client paying on time.  

I will assume that as a landlord you are obtaining a current credit report and using an application.  Make sure that it is filled out completely.  This is key. In addition to a complete application from your prospective tenant, you must verify their employment.  Obtain 30-60 days worth of pay stubs and have them fill out an Authorization to Release Information form ( you can find one on Google) and fax an Employment Verification Form DIRECTLY TO THEIR EMPLOYER.  As a former loan officer for one of the largest banks in the country I occasionally had clients who attempted to falsify their income documents.  A simple VOE sent directly to the employer, would ALWAYS root out any dishonesty. There is space on the form for a supervisor/employer to indicate if the tenant-buyers employment can be expected to continue for the foreseeable future.  If the employment is sketchy, chances are they won't be able to pay you.

The next thing you can do to eliminate the drama is to run a basic criminal background check and determine if they have any evictions on record.  There are several agencies that work with landlords and one I can recommend is National Tenant Network (I have no affiliation with this organization). Here in Michigan, I can also run a cursory background check on OTIS for free.  It will let me know if the potential tenant-buyer has any felony convictions or if they are on parole, etc.  You'd be surprised.  Several years ago, I had a potential tenant who "forgot" that he couldn't live near a school.   

Try and get an idea as to why your tenant-buyers are moving from their current residence.  This step reveals a lot.  In some instances, the client is moving to get into a larger home or a more desirable community.  Just ask!

In July, I had a potential tenant go on and on about how terrible his landlord was.  He said that she didn't like his snakes (!) and that on more that one occasion he had to call the police on her.  But the kicker was when he disclosed during his five minute rant that his landlord was his mother!!  I thought to myself "okaaaay," politely ended the conversation and said "next."  If a potential client has had that level of conflict with his landlord/mother, this is not the type of person that I want to deal with.

The best way to eliminate the drama is to only rent your property on a "Lease with Option to Buy." This combines a traditional lease between a landlord and tenant with the option or right (but not the obligation) to purchase the leased home. In the meantime, your client has an "owner" mentality.  Lease option buyers are responsible for repairsmand as the owner of the property, you can collect a larger non-refundable down-payment.  Because the buyer has significant skin in the game, they are less likely to default or otherwise violate the terms of the lease.