Three Innovative, but Risky Ideas

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Will this help me find tenants?My recent article on Tata Group’s innovative $8,000 housing units got me inspired to think of new ways to solve my problems.  Right now I’ve got four big ones – four vacant units I really want to fill.  I’ve got three risky ideas that might help me fill them.  And I really, really need your feedback on these.  I haven’t tried any of these yet and your objections (or supportive comments) will help me make up my mind.

Idea #1 – Ditch the credit check

I’ve long thought that the credit check is the least important background check I can perform on prospective tenants.  I’ve had many good tenants in the past who had previous financial problems, but were working through them.  Often these are the result of a divorce.  In addition, right now we’ve got a boatload of people with bad credit who still need a place to live.

I’m also thinking of the many successful businesses who focus on serving people with bad credit.  There’s at least one company that promises to help rebuild your credit by selling you a computer with regular monthly payments.  No doubt many of their customers default (and lose their computers), but the company makes up for this by charging a hefty premium for its product.  Frankly, its computer offer is a horrible deal for anyone with good credit, or the money to pay cash for a computer.

If I do this, I’ll advertise it – otherwise, what’s the point?  But as a result, I expect to get many, many prospects with many other problems.  This is going to bring some shady people out of the woodwork.  To compensate, I’ll have to be extra vigilant with my other background checks.  I absolutely will not rent to anyone with a shaky income, bad criminal record, or poor landlord references.  A good comprehensive screening service like NTN Online  will help me with this.

I’ll also have to make darned clear to these prospects that I will immediately begin eviction proceedings if they miss any rent payments.

Idea #2 – Provide moving assistance

Like eliminating the credit check, this is a way to remove barriers to moving.  Many people want to move out of their current apartments, but won’t do it because it’s just too much of a pain.  If I can make the move a little bit easier, perhaps I can convince some folks to, well, make the move.

The risk in this is that I won’t be able to do it!  As noted before, a reputation for keeping promises is absolutely vital for success in business.  I may not be able to personally help with moves depending on what else is going on in my very busy life, so I’ll have to find another resource.  I also don’t have an enclosed trailer or pickup truck – just a pretty big SUV.

Idea #3 – Offer a promotion

By “promotion,” I mean a bonus for somebody who rents from me.  The traditional promotion for landlords has been a month of free rent.  This often attracts prospects who can’t really afford the apartment, and therefore have to be evicted just a couple of months into their tenancy.  I would greatly prefer some other kind of bonus, not directly related to the cost of the apartment.  My wife suggested gift cards to one of the local department stores.

The second risk of any type of promotion is that the tenant will skip on the unit and take the promotion with him.  There is a traditional solution to that, as well – don’t give the tenant his bonus up front, but wait for a few months.  The problem with this is that when I tell a prospect “you can’t have the bonus right now, but you’ll get it in three months,” the prospect may think: baloney.  He doesn’t know that I keep my promises.

My idea is to give the bonus in three installments, the first coming when the tenant signs the lease, the second and third coming in four-month increments.  This way my prospect will have an immediate incentive, and reasons to stay.

While we’re at it

These ideas augment, but don’t replace, the other things I must do to get my apartments rented.  I still have to cast a wide net for prospects.  I still have to prepare the units well for new tenants.  I still have to be organized and prepared.

The problem is, those methods aren’t doing the job any more.  Vacancy rates across New Hampshire are way up, and I’m seeing dozens of vacancies.  Rents have been mostly stagnant here for years.  This in a state that is less affected by the economic downturn than many others.  I’ve got to employ some Tata/Apple/Henry Ford thinking here – make a splash, offer something new and necessary, and start winning some of these battles.

Please, please, please let me know what you think of these.

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5 Comments

  1. Brendan,
    I too, am partial to the idea of minimizing the emphasis on credit checks. I would still do them, but they rank low on my scale of importance. I’m more concerned with criminal background check, as far as background is concerned. In my experience, focusing on tenants that have enough income to pay the rent, a stable job, no criminal activity and exceptional attitudes are most important. Also, if you currently don’t rent to tenants that have pets, you might want to consider that. I just posted an article on my site which discusses this issue. Best of luck, you are facing the same issue as many other landlords across the US!

  2. Brendan,

    There is only one sure fire way to keep them in the apartment using a bonus. Give the tenant a bonus each and every week or month.

    One of my early mentors gave his tenants free pizza, one pie every week during the entire year. The free pizza deal would be canceled if they were late with the rent. The following year he would raise their rent, keeping the pizza deal intact.

    He made a deal with a local pizza join, getting a discount for sending them all of this business. These folks usually added toppings, soda, and extra pizza’s. The pizza guy allowed him to post apartment for rent listings on the wall near the waiting area.

    This guy never had a vacancy that lasted more than a month.

  3. I used to work renting apartments. We sometimes offered one months free rent, but only on a 12 month lease. (I have seen some places offer two weeks free for 6 month leases.)

    We gave the new renter two options:

    Option # 1) Have the free months credit applied over the 12 month lease, thereby lowering their monthly rent by $x/mo.

    Example: a $600 one month credit divided by 12 months = $50 credit per month for 12 months = results in $550/rent for the 12 months. (They still had to put up the usual deposit, which equaled to months normal rent, i.e. $600 in this example.)

    The next lease went back to the normal monthly rental rate at that time.

    Option # 2) Get the full free month as the 13th month.

    After option 1 or 2 was complete, then they could:
    a) Renew for another 6 or 12 month lease (but not with another free month).
    b) Go month-to-month, at a higher rate (usually $25 – $75 more) than with a 6/12 month term lease.
    c) Move out.

  4. Moving Assistance:
    Instead of physically helping them move, offer a financial “rebate.” They pay for the move, i.e. rental truck, helpers (day laborers), a professional moving company, etc. They show you the receipts, you rebate them either a flat fee ($50, $100) or a percentage based on the new rent rate (10%, 15%), after they have paid their rent deposit, pet deposit, 1st months rent, utilities in their name and moved in.

    You could vary the rebate based on bedrooms, i.e. 2 bedroom get $50, 3 bedroom gets $100; or dollar value, i.e. any place renting for $1,000 or less gets a $100 rebate, any place renting over $1,000 gets a $200 rebate.

    You would never want to physically help them move.
    a) You could hurt yourself lifting heavy items (back strain), or tripping.
    b) They could blame you for damage.
    c) They could allege theft (jewelry, cash, etc.).
    d) They could see you as more of a pushover (how many other landlords have ever offered to physically help a tenant move?).
    e) They could see you more as a friend (to be taken advantage of) rather than a landlord (to be respected/feared).

    Promotions:
    1. Do the gift card promotion in stages, but increasing in value, i.e. when they move in its a $25 gift, 4 months later its a $50 gift card, 4 months later its a $100 gift card.
    Also – ask them where they want the gift card from. Some may prefer its from a local grocery store rather than limited to a clothing store or electronics store.
    Another option is to use a card from American Express, MasterCard or Visa, so it can be spent at many different stores.

    2. I saw an ad where the owner included weekly lawn service in the rental price as a promotion.
    A different owner had an ad that promoted that the price included trash pickup (there was no municipal service, trash was picked up by a private contractor).
    A third ad said the rent included the monthly fees to use the area pool (the pool requires a membership based on address).

    3. Offer to report their payment history to the credit agencies, after 1 year of on-time payments and no issues (no destroying property, no police calls, no nuisance calls, etc.).
    From what I understand you can report payment information from the past, as well as current payment information.

    a. Each month send them a letter, email or remind them in person (if you pick up the rent in person) that they only have x number more of on-time payments and you will report the years worth of on-time payments to the credit agencies (or at least one credit agency). After the year is up, show them proof it was reported.
    b. In addition, after the one year, keep reporting the on-time payments each month and remind them each time they pay. This acts as an ongoing incentive.
    They will see the benefits of these positive, on-going credit agency reports each time they apply for a job or credit.

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