Landlords are just like everybody else. The latest and greatest bright and shiny object distracts us all from time to time. We are always looking for that new thing out there that will make our rental business run more efficiently. We are constantly looking at new software, revising our leases and rental agreements, and trying to change little things that can make a big difference in the final outcome of our bottom line.
The constant pursuit of a better way of doing business can help in the long run. But the single most effective way to make such a dramatic impact on our rental business is to have better renters in our buildings. Nothing will influence your bottom line more than collecting all rents, when due, and on time, from your residents. So how do you get better renters in your buildings?
“Tenant Screening” Keys To Success
I have been a Landlord and Property Manager in Massachusetts since 2001. In that time I have known and met thousands of Landlords from being a guest speaker at REIAs, Landlord Associations, Networking and Training Events, Specialized Learning Events and Presentations I have both presented and attended. When I have the opportunity to speak with seasoned veterans, I always like to pay attention to the following two questions.
The first question I like to ask Landlords is, “If you could start all over again, what would you do differently?” An almost unanimous response to that question is “I would have started sooner!” I totally agree with this answer. If I knew way back then what I knew now, I absolutely would have started some twenty years sooner on my path to property ownership and management. Probably the second most frequent answer I get from the really successful Landlords is “I would have started from the beginning treating this more like a business than a hobby.” This is spot on for anyone even considering owning rental property. The laws are written for Landlords as a business, anything over 2-units for state and sanitary code is a commercial property, and if you are holding your property in any type of entity for asset protection, then you are treating your investment like a business. So act like one.
The second question is much more obvious. “What is the one part of your business that mostly directly effects your bottom line?” The answer is not, new software, a iron clad lease, or even tougher resident rules. Landlords emphatically respond hands-down number one answer with, “Tenant Screening”. Tenant screening is job number one to running a successful rental business.
I remember years ago having this discussion with Bernie Sullivan (now retired) from the Gardner Board of Health. Bernie has seen the worst of Landlord/Tenant situations and relationships throughout his career. We all know how this works. Renters don’t pay, Landlord serves Notice To Quit, Renter still don’t pay but they call the Board of Health for habit violations. Bernie has always been amazed with conversations with Landlords who find themselves on the other end of a compliance demand letter. He has heard hundreds of times Landlords say, “Well they seemed so nice when I let them move in.” Bernie likes to ask the same question (off the record). “Well, did you screen them and pull a background and credit check?” More often then not, Landlords have not. I do not know any successful business that shoots from the hip and makes such an important fiscal decision on “gut feelings”. Bernie was always amazed that a Landlord will buy a property for hundreds of thousands of dollars, spend tens of thousands of dollars to fix it up, make it nice, and then let someone take possession and control of their asset with out so much as a simple credit or background check for $25 dollars. I have to scratch my head on that one too.
So What Do You Do Now?
Below I have provided you with a pretty good list to get started with. This is not an all-inclusive tenant screening list and I welcome and would love to hear your feedback on this post about other screening ideas you would like to share. This rule-of-thumb checklist should get you well on your way to having better residents in your rental communities. What ever you end up deciding on as your rental criteria, just make sure that you are consistent and follow your own rules and operations with every single call you receive. This is the best way to avoid a possible anti-discrimination lawsuit. Build your system, modify it when needed, but always use it and stay consistent.
Top 20 Tenant Screening Tips
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Copies of Photo ID Verification
You want to see some type of a Photo ID from all applicants over the age of 18. I usually ask them to provide a copy of this information to verify that someone is not out to steal their identity or commit fraud. Later, should you need to find this resident, having this information could be a valuable resource.
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Copies of Utility or other Monthly Bills
To avoid fraud or identity theft, you are asking for copies of monthly bills for your records that only the applicant would have in their possession. You also want to make sure that they can put the utilities in their name and there is not a history of “balance forwarded”, which translates into late payments.
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Credit Reports
See our blog post on “Getting your Free Credit Report”. This really comes in handy as a useful tool in the decision making process if a resident will follow your instructions to obtain their own credit report before coming to the showing. You are looking for past fiscal judgments and delinquent accounts. Remember what Bernie says above?
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Debt/Income Ratio
Ok, this one should be a no-brainer, but some landlords overlook this question on the initial phone call. Can the applicant afford the apartment? They may have an income of $1,600 per month and are currently paying $900 a month where they currently are and insist to you that they can afford your apartment. But if that is true, then why are they moving? Have a solid system in place for income requirements. Old school Landlords use to use the method of one week’s pay to cover the rent. That is roughly a 4.0. Develop a system that works best for your type of rental property. Check out our blog post “Know Your Numbers Before You Call The Landlord”. There is a set formula to determine the ration to see if the phone call applicant will qualify for your rental.
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Employment History
Longer is always better for employment history. I am much more comfortable seeing an applicant working at their job for seven years as opposed to seven days. Also consider the type of employment. My Father was a contractor feeding a family of seven children and winter was tough around our house growing up, as work was scarce. He always found a way to make ends meet because Dad was a dedicated family man, and instilled in all of his children an ethic of hard work and pay your bills. So it could work out, but you need to check and weigh your options here.
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Felonies and Convictions
Tread lightly here. Recent law changes have singled out Landlords for racial discrimination for denying applications for criminal background checks on the grounds that a higher proportion of crimes are identified with a specific racial class. Do not be too quick to judge. Be more concerned if the crime will potentially put your current residents in reasonable fear or in harms way. For example, I would not consider putting a convicted sexual predator into a rental building that was near a school or playground. Check, but use common sense in your decision.
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Income Verification
My favorite phone call is from an applicant moving into Massachusetts that tells me over the phone that as soon as they are able to move into my apartment, they can start looking for a job to pay the rent. Or even better, they can pay all cash today to move in right away. Do not be swayed to the dark side. Always, check and verify income by requesting several months’ copies of pay stubs then follow up and call the HR department.
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Lawsuits
Our rental application asks for all lawsuits applicants have been involved in as both Plaintiff and Defendant. Here, less is more here. If someone has a history of trying to sue every Moe, Larry, & Curly they come in contact with, then I am less likely to expose my clients to that risk.
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Local Housing Court Evictions
Believe it or not, but in Massachusetts you can check this one out for free right from your smart phone, tablet, or mobile device. Within just a few minutes you can enter in the applicant’s name and see if they are a “frequent flyer” in the State Housing Court System. For more information on access to the State-Wide Database, see our post on “Becoming a Massachusetts Landlord.”
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Names of all applicants/occupants
You MUST have a complete list of EVERYONE who will occupy the premises. This is so vitally important BEFORE you even show the apartment. So often is the case that someone will call looking for an apartment under their name and neglect to tell you about their significant other who is currently getting evicted, or even worse. They will take possession of the apartment,, then move in their “friend”. Make it clear before you even set up the showing that only the listed names on the call will be allowed to live there.
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National Housing Court Evictions
So how do you handle the call when the applicant is calling from out-of-state? There are fair weather renters that travel North and South depending on the season leaving a trail of unpaid rents behind them. They will travel North during the summer months, then in November when they owe you thousands in unpaid rents skip town to Florida for the winter. Then, after they have done the same to their unsuspecting southern hospitality, split town and repeat the cycle year-round. Agencies like the National Tenant Network can help ease some of the pain for these types of renters. But be wary, some of these renters are under the radar because the landlord never follows up to evict them or get a judgment against them. Using a several-pronged system and requiring references may assist you in weeding them out.
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Need for a co-signer
Sometimes when a recent college graduate applies for an apartment they may not have adequate employment or rental history to qualify for the rental. This is where a well-written co-signer agreement comes in handy to help them with their housing needs. One caution here though. Make sure the co-signer resides in the same state as the rental property just in case down the road you need to collect on a judgment. Co-signers should also fill out the complete rental application and go through your entire tenant screening process.
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Number and Types of Automobiles
Room mates may sometimes require more parking spaces then your property can handle. It might be a good idea to address this issue before you show the apartment then wait until after they move in to find out there is constantly going to be a parking problem for the remainder of their tenancy.
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Number of requested occupants
State Building and Sanitary Code can be your best friend when confronted with that applicant who sees no problem moving 5 people into your 1-Bedroom apartment. Not a bad idea to brush up on Minimum Square Footage under MGL 105 CMR 410.400.
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Personal References
I have never seen anyone put down as a reference someone who would not say nice things about them on a rental application. This information really becomes critical later on in the relationship when things go south and you are looking for the ex-renter. When you call that reference later saying you need to return their personal property, which is of value (a summons to appear in court, or the junk they left in your apartment), they may be willing and able to tell you where they are now.
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Pet Policy
A big hot button right now for Landlords is service animals. We are not talking about service animals here; we are talking about having pets in an apartment. Do you have a pet policy in place? Then stick to it and always do the same thing. We actually have buildings designated as pet-friendly where our standard unit runs $100 to $150 more per unit exclusively on that property. The rents are just higher at that property because it has a huge yard that we will allow a resident to have a small dog.
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Rental History from Past/Present Landlords
Yes, you always want to check present Landlord references to see if the story is the same from the applicant. But you really, really need to talk to the previous Landlord to get the whole story. The current Landlord may just want them out and tell you only the wonderful things about the relationship (not lies, just limited truths). That previous Landlord has nothing to lose and with a little coaxing you may be able to get them to open up about their previous “guest”.
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Scoring or Rating System
We picked up this practice years ago from Jeffrey Taylor, Mr. Landlord about having a scorecard to use to reasonably and fairly rate all rental applicants. We rate the applicants on a scoring system with points in accordance to character qualities we look for in a qualified rental applicant. Some of our criteria are; did the applicant follow instructions, can they afford the rental, did they bring the required copies of paperwork requested, do they have the required deposits, etc. Based upon how well the applicant performed these tasks, we give them a score. A higher score is more favorable, but this is not the only litmus test in the decision making process. It does however; help to identify red flags on the rental application.
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Smoking or Non-Smoking Policy
In December 2012 we set a non-smoking building policy over all of our rental apartments when Massachusetts voted in Medical Marijuana. We will not discriminate against a prescription for pot, but you cannot ignite it in the rental, Period. There are ingestible forms of prescriptions that do not require rolling and smoking a joint. In November 2016 Massachusetts voters passed a law for recreational use of marijuana. Lots of Landlords I know are running scared, but after reading the law, I am comfortable with the black and white provisions provided by the legislation. In no way, can a resident ignite, cook, or burn pot in a rental unit that may jeopardize the Landlord from violating Federal Law. Find out more in our blog post covering “New Marijuana Laws = New Challenges for Massachusetts Landlords”.
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Social Media Presence
Finally, when we accept the rental agreement from the applicant we make a little tongue in check joke that they have 24 hours to pull down all of the photos with “red cups” from their Facebook page because we are going to check. Are we kidding? Not really. We are going to check ALL social media accounts we can find to verify the story being told. If you tell us you do not smoke, then we find photos of you playing with Barbie dolls toking on a bong in an attic where you currently live, we are probably not moving forward with your application. Yes, that really happened. You can’t make this stuff up.
Do you have any ideas on this topic you could share to help our online community? Please chime in to share a comment or review.
Warmest regards,
Brian Lucier
Belaire Property Management
Regional Property Manager
(978) 448-0669
info@belaire.co
www.belaire.co
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