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Raise Your Rental Standards – By Robert Cain

Posted on 12. Mar, 2012 by in all, Magazine Articles

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In an interview with Multifamily Executive Magazine, James McClelland, the CEO of Mack Cos. of Tinley Park, Ill and 36-year veteran of the investment real estate market, said: What we’re getting now versus what we got before are residents with better income: people in solid situations who for one reason or another were forced out of their property. We have more people to choose from than ever before. As a result, through quantity comes quality. Of course, rents go up, too, but that’s really not as important to me as having good renters.

That is good news for landlords because, in most places in the country, we are seeing a similar scenario. What that also means for landlords is that we can set our rental standards higher. No more renting to someone with income where 50 percent is going to rent, a spotty rental history, and two weeks on the job. We can now ask for income three times rent, good rental history and long-term employment. And there is no excuse not to. We owe it to ourselves to begin protecting our investments by demanding good tenants.
So where should our standards be?
Of course, it all depends on the property. Obviously, a 400 square foot studio apartment will draw a different demographic of tenant than a 4,000 square foot, six bedroom, four-car garage, swimming pool and spa, 360-degree view property. And our rental standards will reflect that.

How about the studio apartment? Look at the standards now? How much can those standards go up before they drive off prospective renters? This is not an exact science; it is more like trial and error. But regardless of the lack of exactitude, those standards need to come up if we are to hope to ensure success in this business. Each landlord needs to decide what the market will bear.
Here’s the problem if standards stay the same. We are obligated both by ethics and the Fair Housing Act to take the first acceptable applicant who shows up, screen him, and accept or reject on the basis of the tenancy standards we have published. If a more qualified applicant shows up after the less-qualified one, ethics demand that we still screen the first applicant first and accept him if everything checks out.
Raise the standards and that lower-quality applicant might not qualify to rent from us, so the more qualified applicant gets to be our new tenant.
McClelland said in the interview that those higher standards are working for them and they are getting a higher-quality tenant. He said, We do all of our own screening, including a credit check; an interview with their current landlord; a site survey of their existing home, because how they maintain their unit is indicative of how they will likely maintain our unit. We talk to their employer regarding their prospect for long-term employment; we do a skip trace; and we do a criminal background check. Best of all, Mack Cos. has a four-month waiting list.
How much can you raise your rental standards? The market is finally turning in favor of landlords and we can begin to get the high-quality tenants our properties deserve.

Robert Cain is a nationally-recognized speaker and writer on property management and real estate issues. For a free sample copy of the Rental Property Reporter call 800-654-5456 or visit their web site at www.rentalprop.