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How to Stop Bad Tenants Cold – By Robert L. Cain

Posted on 01. Jun, 2013 by in all

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“When I started out, I was hungry to get renters in.  My hunger for tenants cost me over $10,000–that’s how much it cost to deal with one unit with a meth lab in it.  Now I’ve just quit relying on character judgment.  For managing rental property it doesn’t work.  I have a set application process, written down.  The applicant must meet all the criteria.  If they do, I rent to them.  If they don’t, I don’t.  It is simple, legal and fair.  I’ve been doing it for a year and a half now.  At this point, out of 18 properties, every one has good people in it.”  This landlord learned by burnt fingers, what too many landlords never figure it out.  In fact I hear all the time that people got out of the rental business because of bad tenants, they just kept getting them over and over. 

 “I am trying to rent a house and I have an applicant that filled out an application and some of the information of it does not match. For example, he said that were he rents at now the owner has several property and I [looked up] the name of the owner on the property and a completely different name comes up. The prior landlord has the same situation. I feel like the information provided is not correct. What should I do and how should I address the applicant.”

“Seven years ago I bought two houses on land contract, and believe me, they were really fix-me-ups! At any rate, I did the major stuff to make them habitable, and each year, I do a little more to bring them up. The problem is I seem to have a revolving door on these two houses. I finally got smart and started doing my own credit checks in the public records. This has empowered me a lot. However, I always have a vacancy or a pending eviction for non-payment of rent. I think the credit check is going to help a lot, but I go in the hole every month on these two. Now I also have a double, and I make money on that one. These properties are in the inner city, so if I sold them, no one wants to give me anything for them. I refinanced my home last year in order to pay my rentals off, but I just can’t seem to turn the corner on these! Any suggestions?”

There is no excuse!  No way a bad applicant should slip by you.  You can find out about the people who are trying to rent from you literally in seconds, but too often landlords don’t.  Go figure.

A bad tenant costs you thousands of dollars in lost rent and damage to the property.  But too often landlords don’t stop them at the curb.

Oh, I know why landlords don’t check.  Two reasons: they are in a hurry or they feel sorry for the applicant.  It goes back to rule number seven that I talk about in my speech “The Rules,”  “Never decide to rent to an applicant while you are listening to him.”

Instead decide to rent to an applicant after you have screened him or her.  You can decide, with all the information about the applicant you need, in minutes. So the excuse of being in a hurry doesn’t cut it. 

And pity doesn’t cut it either.  There is a reason, or several reasons, that the tenant has had so much trouble.  Trouble and problems don’t just rear up and whack people in the head, the person with the problems has to have done something, sometime to give the assorted disasters a clear shot at him or her.  Likely, that will show up in the credit report or public records search. 

Here’s How to Stop Them Cold

First, you need to know what is important to you when you screen applicants.  What is important is a function of each property, not each applicant.  Each property attracts a different applicant demographic, and your standards and what you screen for need to reflect that if you are going to be successful selecting the applicant who will be a good tenant.  BE CONSISTENT.

Second, consistent standards take Fair Housing and Fair Credit Reporting Act violations out of the picture.  You are screening without regard to the applicant’s race, religion, creed, national origin, familial status or handicap.  In fact you don’t even care what any of those are.  All you care about is that the applicant meets your objective rental standards.

Here’s how it works.  Suppose you own a property that attracts families with small children, rents for $950 a month, usually has tenants with marginal credit, but they are employed, don’t get evicted and never have criminal records.  They also have income that is two-and-a-half times rent. You can set up your package to screen for those characteristics.  You pull credit, but are not looking for a perfect FICO score.  FICO, which stands for Fair Isaac Corporation Scores are calculated from several credit data in a credit report. Fair Isaac Corporation is the company that created the credit scoring model and sold it to the world. This data can be grouped into five categories, payment history, amounts owed, length of credit history, new credit and types of credit used.

You want a minimum of eight months to a year on the job, maybe in the same occupation for at least two years, with no criminal record and have never been evicted.

You receive applications, making sure all the blanks are filled in before you accept them. Collect an application fee from each applicant that will cover the cost of screening.  This is non-refundable if you check the application and you do not accept the applicant. If you do accept him or her, you can deduct it from their first month’s rent. If you accept another tenant before you have processed the application, the fee is refunded.

Then you put a date and time of receipt on each one, and start screening.

You start with the first one you received, Tim Tenant’s, and verify everything he has put down on the application, from previous addresses and landlords to employers. He didn’t lie.  [Now you run your tenant checks through AOA.]  It turns out the applicant’s credit is okay.  In fact, it is slightly higher than your normal applicant, there just isn’t much of it.  He has just eight months on the job.  That’s marginal.  Then you find out why he doesn’t have much credit history, he spent two years in jail for drug dealing three years ago.  You fill out the rejection form, mail it off. 

Next. Your next one, Roxanne Renter, has marginal credit, one and a half years on the job, has never been evicted, and has no criminal record.  Her landlord references all say she was a good tenant. Plus she has enough income. You rent to her.

Other properties may attract different tenants demographically.  Your 1,800 square foot townhouse, with pool and health club privileges, sits on a golf course, and rents for $2,250 a month. It attracts people who are “renters by choice.”

With the tenants who will rent this unit, you will want excellent credit scores.  Every credit report has a score ranging from 400 to 850.  Someone with an 800 FICO score is most likely a slam dunk to pay the rent on time. Likewise, someone with a 460 score doesn’t understand the importance of paying anyone, or can’t get it together to get bills paid on time or at all. Almost all scores fall somewhere in between, though.

The renters by choice are tenants who could buy a house–if they wanted to.  But they choose to live in rental housing, and expect excellent service from their landlords.  By the same token, you expect only excellent tenants in this property.

As a result, your rental criteria would reflect that.  FICO scores over 720, at least two years on the job, and perfect landlord references.  Obviously, no criminal record or evictions would be allowed.

Remember, you are in charge here, not the applicant.  You set the standards of whom you will allow to live in your properties and you stick to them – CONSISTENTLY.

Criminals

I said there was more to say about criminal records earlier.  Criminal records searches can be conducted two different ways.  One is a state-wide, instant search, the other is the county criminal actual court search.

Many screening companies offer really fast criminal record searches.  Those are almost always the state-wide instant search.  They are fast and, if you are lucky, will find a criminal record for someone who has one.  The downside is that these databases are not updated as often as the county reports, and are often for a limited number of counties in a state.

The county search is very accurate.  It is done one county at a time, but requires two to three days to get back to you.  Usually you will request a search of the last one or two counties the applicant has lived in.

Yes, it is slow, but here’s a two-step process to make it work better.   Make your first screening the one that verifies everything and makes sure that your applicant meets your basic requirements.  In the first example above, Tim Tenant met the criteria of having worked for eight months and had no collections.  He would have initial approval, pending the criminal record search.  That search, however, showed the drug dealing conviction.

On the other hand, suppose your initial search showed that Tim had a collection for $750 that could soon end up as a judgment, and thus a garnishment of his wages.  You could reject him at that point, sparing yourself the criminal records search.  In other words you could approve him conditionally, pending the outcome of the criminal records search.

Too Clever by Half

Bad tenants think they are really clever.  You already know some of the tricks they try.  They will forget they lived someplace, usually where they were evicted or left in the middle of the night one step ahead of the eviction.  They will use their friends as “references,” claiming they are previous landlords or employers.

With all this information at your tenant screening company’s fingertips, there is no reason that you should ever be fooled by a bad tenant.  All you have to do is check.

Robert Cain is a recognized speaker and writer on property management and real estate issues. Visit the web site www.rentalprop.com.