Avoiding Disastrous Tenants

Nearly every time I discuss being a landlord or investing in rental properties with friends, I hear multiple reasons why someone thinks it is a bad idea. These excuses typically revolve around the idea of having to get up at two in the morning and fix a clogged toilet. Or tenants moving out and destroying a house leaving the landlord having to fix it. As an investor that has been operating rental properties for over 15 years, I cannot recall a 2am toilet emergency. Yes, I have had emergencies and tenants that move out leaving the house a mess, but with proper planning even these trying times can be handled with little or no stress.

If you have read the previous blog posts in this series we have discussed these issues at length. One of the key points discussed prior was building your TEAM. Your established real estate investment TEAM will be the difference in how you react to these issues. Disaster tenants are a reality, but even this risk can be minimized by a good TEAM. What you have to keep in mind is the end game, why are you doing this? Why are you renting property? You are doing this to create additional cash flow and ultimately to build wealth over a period of time. This is life changing, and one of the greatest benefits is the time you will be able to spend with your loved ones.

Clogged toilets, roof leaks, broken doors and garbage disposals are part of the deal. They can all be minimized if addressed early. I will walk through these issues quickly before we get to the main point of this post.

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When you purchase a property this is your opportunity to fix these problems before they even happen. Your contractor team can help you assess the condition of the property before you even buy it. Do a thorough walk of the property and know what needs to be done. Fix the roof, replace the toilet, replace the locksets before you put the property into service the first time. Issues will come up on wearable items such as door latches and broken faucets will happen, but providing quality rentals should be your first objective. By doing so your calls to fix these things will be greatly reduced and you can simply collect your rents from a happy tenant.

You run your rental ad. You get several people that view the property and then the business of disaster tenant avoidance begins! Again, your TEAM needs a call to action. This time your property manager or yourself is you are going to manage it personally. I will list out the steps below if you choose to self manage:

  1. Show the property – Introduce yourself to the prospective tenants. This is extremely important. Ask questions about the potential renters current situation. Job, where do they currently reside, why do they want to move here, what do they like about this property. You can gain a ton of insight into a person and what they will be like by taking a few extra minutes with them now.
  2. Review Applications – A quality application is one of the most important steps. Ensure that you have your attorney look over you application and process to ensure you are operating within the bounds of the law. This is your chance to get all relevant information to help make a good decision.
  3. Conduct a Background Check – As part of the application most states require a release to obtain a background check. Most background check companies will provide a form that you can attach to your application for this purpose. I have listed a few quality background check companies that we have used below. Do your homework and find the best fit for you. A simple google search will list thousands of companies.
    1. https://www.mysmartmove.com/
    2. https://www.youcheckcredit.com/
    3. Local Court Documents – Google search for your local resource.
  4. Check References – These personal references should be listed on the application. Do not shortcut and not check them. You will be surprised what you may find.
  5. Check Rental History – Listed on the application as well. Call previous landlords or apartment complexes. Ask if they would be eligible to rent from them again. Some will tell you and some will not comment. Sometimes silence say a lot.
    1. Eviction and Criminal History – Ask on the application specifically about this. This is a question that many potential tenants will fail to disclose. If you find through the background checks that there has been an eviction or criminal history that was not disclosed, you will want to think hard about leasing your home to someone that is already lying to you.
  6. Check Employment – Call current and previous employers. Again, ask some questions. Are they a good employee. Are they dependable. Verify the dates of employment and any other information that the application has stated. Would previous employers rehire?
  7. Execute a Solid Lease Agreement – Your attorney should draft this document for you and ensure that is meets or exceeds all local law. When you do have an issue you should know how to deal with it by referencing this document. If there are several items that are specific to a property  I like to add them here. Such as,
    1. Remote controls
    2. Trash and recycle days
    3. Dish Network / DirecTv must be pole mounted. No roof attachments. Any additional cabling must be approved and supervised by the owner. This may seem like overkill but we have had three dishes on a roof and multiple cables circling the house.
    4. Utility service companies
    5. Emergency numbers

By building and using a quality TEAM to assist with finding and leasing to quality tenants you will minimize your headaches. You will find that the rental business can not only be financially rewarding but be fun and engaging. Not all tenants are looking to make your life hard, most are simply looking for a great place to live and raise their families. For the most part, I have experienced quality tenants that plan their moves in and out of our properties and are good partners in this endeavor. Beginning with the end in mind and mutual respect between the parties from the start helps ensure this mutually beneficial relationship. The landlord tenant relationship can be a good one if the rules are clear and in place up front.

Today’s tenant demographic is quite different that twenty or thirty years ago. More and more people are looking to rent instead of purchasing a home. They want the freedom of not dealing with a mortgage, taxes, or maintenance. This can be a win win situation for a quality minded landlord. This can be your final step to financial freedom. Freedom to do what you want when you want. Freedom to spend your time when and with whom you choose. Today’s 8:00 to 5:00 office hours will eventually turn into you creating and mandating your own office schedule. This is a dream many people have, but only few choose to do something about it. For me it started by being an entrepreneur and then realizing the power of real estate. Now I am living that dream with hopes to help others do the same.

 

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