Using Bad Tenants to Improve My Business

If you have experience being a landlord, you know how difficult (and frustrating) bad tenants can be. You quickly realize why people despise being a landlord. But having bad tenants can be a good thing, at least in the long term. It forces you to reevaluate your current prescreening process and gives you the benefit of hindsight, so you can see where you previously went wrong, and which adjustments you need to make in order to improve you process moving forward.

When I first began managing my own investment properties, I wasn’t taking the time to do a thorough prescreening. I was more focused on just getting someone in the property so I could start collecting rent. I made sure they had a job, I spoke with previous landlords, but I mainly relied on my gut instincts (insert Napoleon Dynamite “IDIOT!”). Everything was good until one of my tenants decided that they couldn’t make their monthly rent payment due to “life circumstances”. So I decided I would work with them, although I was very upset by it. Then things gradually got worst, and I soon realized that I had no idea who these people were living in my property. I was no longer upset with my tenants, but upset with myself for being in this situation.

So after this happened, I decided it was time for me to sit down and really focus on improving my prescreening techniques. By no means is it a perfect prescreen process, but it is vastly improved from the way I was doing it before, and it helped me find great tenants to move into the property.

Marketing the Property

When I advertise my properties, I like to leverage my website as much as possible. It saves me from speaking to unqualified tenants, which can take up an extraordinary amount of time. I place a short and simple Craigslist ad that catches their interest, but directs them to the website in order for them to get full details and photos. I also place a For Rent sign in the yard with a information box that includes property info and Qualification Standards. Again, this is also an attempt to reduce the hassle of unqualified tenants.

Rental Qualification Standards

This has become my primary prescreening tool. Having strict qualification standards will reduce your exposure to poor tenants. It is a very simple, yet straightforward document that shows your applicants what they need in order to rent your property. I include this document along with the info page I put in the info box on the For Rent sign, and I also include a link on the property’s listing page I created on my website. Any inquiries I receive, I immediately tell them to view the Qualification Standards. If they qualify, then I will set them up with an appointment to view the property. Otherwise, let’s not waste our time. Having these standards in place will eliminate 95% of people interested in your property, but the 5% who do qualify are VERY strong applicants.

Application

Do not take the application phase lightly. This is where you learn who you’re potential tenants are. Some things I include on my application is:

- Current and previous address
- Landlord contact info
- Employment history
- Income verification
- Copy of License or State I.D.
- Vehicle
- Criminal background
- Bank info

Notice that I do not include references. References are just friends and they will always tell you how great the applicant is. My worst tenants received great reviews from their listed references, so I don’t bother wasting my time with this anymore.

I also collect a $25 Non-Refundable application fee. Although your potential tenants will have a beef paying you a non-refundable fee when it’s not a guarantee they’re going to get the property, it is a very necessary fee. It pays you for your time to process the application, and it ensures that they are serious applicants with a strong desire to move into your property.

Security Deposit

I found it to be a good idea to require the maximum security deposit, which is one and half month’s rent. This is another area your applicants will have trouble with. They have a hard time understanding why the security deposit is so much higher than the rent. Again, this is another tool to find the best tenants. Tenants who can afford to pay the high deposit will be better qualified because they will be more able to afford the rent. I also keep the security deposit separate from the rent so they cannot apply it to the last month. This will keep your tenants thoughtful of their deposit, and provide them an incentive to take care of the property and obey all terms in the lease agreement.

Using this process I was able to find a good mix of efficiency and effectiveness. By leveraging my website, I reduced the time involved with speaking to interested parties. And by having Qualification Standards in place, it will keep unqualified tenants at a safe distance. There is no such thing as a perfect prescreening process, but by being patient and thorough, I was able to position myself much better when placing tenants in my rental property. Unfortunately, it took me a bad experience to truly understand the importance of a thorough prescreen process. But in the end I’m thankful for it because it helped me improve my business operations.

Brandon Garlow

BCGHomes.com