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I have already written about the two most important facets of Tenant Screening, credit score, and income:
- How Effective Tenant Screening Can Lead to Higher Profitability
- The Four Pillars Of Tenant Screening
You will never get paid if you do not have tenants that make enough money. You will be continually chasing rents, and other issues, if your tenants have low, or non-existent, credit scores.
This article will focus on the third pillar of tenant screening, past landlord checks.
I am a low-risk landlord. I used to be a Section 8 landlord, read my previous posts, or posts on my own blog to get a feel for some of my past adventures.
I like 100% of my rent paid and deposited by the second of the month, every month! Typically all of my rents are paid on or before the first day of the month.
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Hey there! Screening tenants can be a tricky business, and this critical step can be the difference between profits and disaster. To help you with your real estate investing journey, feel free to download BiggerPockets’ complimentary Tenant Screening Guide and get the information you need to find great tenants.
How To Make Paying Rent Easy
I make it easy for my tenants to pay rent. I send an automated text to all lease signers on the 28th of the month, at 2:00 PM.
It is a simple text message, “Group Text. Reminder, Rent is due soon, if you have already paid, thank you”.
I collect rent in various methods, and am always open to more. I have rent boxes in each building. I take PayPal (free option); I collect cash if necessary, some tenants use BillPay direct from the bank.
Some use USPS mail. Some tape it to the door. I do not mind going to the property, most of my units are in the same complex. I can park once, and walk, to 21 of the 25 units I own and/or manage. They are only three miles from my house.
If I do not get the rent on the first, I send another text to the tenants that have not yet paid. Sometimes the rent check was in the box, but I missed it.
Sometimes the tenant had it ready, but it was on the fridge. With solid tenants, late payments are a rarity. Remember, rent is due on the first; it is late on the second.
A late fee applies on the fifth. An eviction follows shortly thereafter. I have not had a missed day of rent in many years. I have only had one eviction in the last 4 years, despite having 24 tenants now.
Be Picky With Who You Rent To
I turn down many renters that might be great renters, in someone else’s apartment. It is impossible to screen out all of the bad renters and yet allow all of the great renters in.
People that have never been declined by a housing provider in their life I may decline, and I am OK with that. I am a lazy landlord; I want all of my rent with the least amount of work.
I will be the first to admit, I do not actually physically do most of my tenant background check verifications myself anymore. I use a full service company that not only provides a credit score and criminal backgrounds, they make the calls necessary to verify income employment and rental history.
To get that set up, it cost $100 for a one-time, on-site inspection, and it is worth every penny. I used to do my own checks, and have seen tenants provide their friends and relatives as references.
Tenants use addresses that they have never lived at. I have had tenants that forget about the nine times in the past seven years that they were evicted. I have seen tenants that forget about the eviction that was filed against them in the past week.
Regardless of who actually gathers the information, the rubber meets the road after you have the information in hand, not gathering it. How you interpret the background check information will make or break you.
The background checks I get cost ~$40, which include everything I need to make the decision to accept or reject a tenant. They include a full FICO credit report, county level criminal check, Transunion (to learn more about TransUnion, click here) Rent Bureau check, employer verification and income verification.
I charge my incoming tenants $40 to apply. If they bring in the application with $1,000 to hold the unit, I may waive the application fee; but if they fail the check, I send the money back less the application fee.
If they pass, the money is applied to the incoming funds that are due. If they do not rent it is my money.
The ‘holding fee’ (not deposit) locks up a tenant until you have the background check complete.
Contacting Prior Landlords
Contacting past landlords is an art in itself. What you do with the information is also variable. Some landlords, especially current landlords, will give a glowing reference to their tenants so that the tenants can get accepted at a new place.
Even past landlords do not want to say anything bad for fear of being sued.
Generally, if you are not asking the correct questions, you will not get the information that may be pertinent to your decision. I have had private landlords ask me about rent payments, but not about damages.
They ask about police calls, but not about extra tenants moving in. They ask about how long the tenants were living there, but not why the tenants are leaving.
Below are some typical questions to ask a previous landlord.Remember, you need a signed release to get information from most of the larger complexes.
- How long did the tenants live there? (less than 2 years is a red flag)
- How much was the rent? (If it was less than what you are charging, it is a red flag. Can they afford it on their same wages?)
- Did you refund the entire deposit? (anything less than a 100% refund is a red flag)
- Were there any pest issues? (anything other than No, is a red flag)
- How many times did the tenant pay late? (anything other than ‘never’, is a red flag)
- Were there any damages? (anything other than ‘No, is a red flag, although the deposit refunded will give you another clue)
- Would you re-rent? (Anything other than ‘YES’, is a red flag. A ‘free to re-apply’ is a red flag)
- How many occupants lived in the unit? (if there is more than what applied for your place, it is a reg flag)
- And, as a Hail Mary, “Tell me what kind of tenants they were”. (Small landlords will spill their guts, many complexes want specific questions.)
Despite all of the questions, I generally discount what both the current and previous landlords say. For any tenant that I would consider moving in, I expect all of the past landlords to say the payment rating is prompt, and that they would rent to the tenant again.
I do the past landlord checks because I have seen some comments that are a definite help. When a landlord says they would rather stick a knife in their own eye than rent to that tenant, it means something.
It is always suspect to call the past landlord listed on the application unless you can verify that they are the property owner or manager of that address, and the address shows up on the tenant’s credit report.
Always Verify No Matter What
Use the county records to verify the property owners. Calling the number on the application may be your only hope, but it is suspect information at best.
Good tenants put the correct information down, but you do not even need to verify good tenants. You need to verify the tenants that are trying to fool you.
You can also do some ‘tricks’, such as stopping by the tenants old address to drop off an application, if you have time. I do not have time, so I do not do it. But in my early days, I have.
When you have tenants from out of state moving in it is near impossible. Use the tools at hand and are readily available: credit score, income, rental history, criminal background and employment. Make your life easier, not more difficult; get a great tenant from the start.
I generally only rent to class A and B tenants. Solid credit score, solid income people. I re-positioned my property from a D to a B property, and for a while it was difficult to get solid tenants to rent there.
I had to upgrade my apartments, and give some rent concessions to attract quality tenants. It was also a gradual improvement, as quality neighbors are a prerequisite for quality tenants.
Once you get solid tenants their friends want to live there too. When they leave, they still recommend you to their friends. When someone they know needs an apartment, that person gives you a call.
Make your life easier. Match the tenant quality to your rental and get the best renters you can find. Know how to market to them and how to recognize them on paper, before you ever meet them.
What do you use as criteria to validate a prospective renter?
What horror stories have you had and what could you have done to prevent them?
Share your comments below!