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We’ve all heard about the “tenant from hell."
You know, the one that that knows every law, knows how to take advantage of the system, and will take advantage of you and live for free in your rental property for the next year?
Unfortunately, tenant-friendly states like Massachusetts, California, New York, and others, just make it harder for us to run a good business. They make the situation worse for us and for prospective tenants!
So, the key is to try to avoid the bad ones in the first place!
The single most important thing a landlord can do to avoid bad tenants is to screen them. In fact, MOST landlords have little to no screening process, which is why you should implement a formal screening process and application with an application fee. The application fee should cover the cost of doing a background check, credit check, and eviction records check.
Start by downloading a free tenant application form (and you'll find a ton of other free forms as well) You should include these questions in addition to anything else you may find necessary to screen for bad tenants.
Then, follow these:
This step is amazingly critical. To illustrate my point, let me tell a story.
A friend of mine had a potential tenant come view the property. Let's say his name was John.
John showed up straight after work. He was a chef and came smelling like a kitchen and had stains on his clothes.
While this isn't the most professional appearance, my friend noted that it appeared they were employed as a chef, and their application showed they were a chef, so things checked out.
My friend decided to ask around town (it was a small town) and see if anyone knew John. After some digging, it turned out John was actually unemployed. So, my friend made a quick call to the restaurant he was "employed" at and he definitely was not employed.
It turns out John wore a chefs uniform like a costume, and all the stains and smells were part of his attempt to fabricate a work history. Crazy, right?
The moral of the story is if you want to avoid bad or dodgy tenants, you need really dig into their background. Here are several items you can dig into to help you with the process.
How do you know this person is who they say they are? People with multiple evictions and unpaid bills will often use a friend, family, or coworker and apply under their name.
So, get an ID and make sure they are who they say they are before spending any money on credit checks.
Additionally, their ssn is required to do most of their credit/background checks and it will be very useful if you ever need to send their debts to a collection agency or court.
You should ensure that the tenant's debts are not too high. Typically, a tenant should not have debts more than 1/3 of their income to be a financially stable long-term renter.
You need to be a bit reasonable when considering a tenant's credit. Often, tenant's may have bad credit due to a divorce, lacking a credit history, or a number of explainable reasons. Focus on the report as a whole and not just the score.
Do you want to know how to avoid bad tenants? Simple...
Do a background check.
Most landlords don't do this because it costs money. Being cheap and trying to save $25 is a way to cost you thousands. So just charge the fee to the applicant and get the background check.
Also, search on Google for anything that may have happened but wouldn't show up in a typical background check.
I like to search people's Facebook accounts. Most of the time they don't have their privacy settings set, and I can see all the illicit things they brag about. Obvious the applicants with the illicit backgrounds don't get accepted!
You don't want to live next to a felon and neither do your other tenants. Check to make sure the application has a good background with no serious criminal behavior.
The most recent landlord's information is useless because the landlord will say anything to get them out if they're bad
I love it when I receive calls from landlords screening someone I had as a tenant. I also love it when they didn't pay or caused a lot of damage! So, make sure you are asking for at least 2 landlord's information and more if they have it.
A little trick I use is to verify and make sure these people are actually their previous landlords. Start by checking the city records to determine who owns the building then try to find their contact information from some source other than the tenant. That way you know they didn't provide a friend's number who will just act as the landlord.
I personally have seen rental applicants invent addresses or give names and numbers to friends. I always check public records to see if the owner is the same as the name/number provided. If they list an apartment complex with an on-site manager, I search the leasing office number online instead of using the one provided.
If you want to be a great landlord, you need to always cover yourself. These days, it seems like everyone sues over the smallest thing. Especially with housing, make sure you reject applications for very specific reasons. The best way is to catch them lying to you on the application.
Most bad tenants don't realize how easy it is to actually check their eviction history and court records especially since you have a copy of their ID, SSN, and previous addresses.
On multiple occasions, a prospective tenant has said "NO" when asked if they have ever been evicted just to find multiple evictions including one pending! Lying on an application immediately disqualifies an applicant and so does a recent eviction.
Always verify income and never accept under-the-table income toward their numbers.
Any document can be forged. Research the company they work for and contact them directly to ask about employment.
Do not use the phone number listed in the application.
If a bad tenant would lie about their income, they will probably put a friend or family member's number there to lie for them as well.
A lot of problems can be resolved easily if the agreement is written instead of a verbal tenancy or lease agreement. This is especially important if you do end up in court.
The agreement is mutually beneficial as it lays out all requirements from both parties and reduces conflicts. But, since you write the lease, make sure it is full of language that protects you.
It is very easy to get emotionally involved when your money is being wasted. It's imperative that you know how to manage your relationship with a tenant - you are a business person and should always act like it.
The fact is that many bad tenants will goad you into doing something just to use it against you in court.
Avoid the emotions. Don't act on a whim. And make sure you follow all applicable laws.
A notice to quit is not an eviction (it may be called something else in other states). It simply tells a bad tenant to fix their mistake or they may be evicted. Explain to the tenant that it is just a formal step you must take and if they pay it will have no effect on them.
Every state calls it something different, but the premise is the same. Do not hesitate to deliver the notice and start the eviction process.
It's important to have rules and policies in place. You should tell prospective tenants about some of them and judge their reaction.
A great example is requiring tenants to have renters insurance. Tenant's that have no intention of paying you are very unlikely to want to protect their belongings with insurance.
Renters insurance will cover their belongings and protect you in the process. It costs less than $10 a month usually, so it's a no brainer for the tenant.
If you have the option, avoid tenant-friendly states and try to invest in landlord friendly states.
Here is a quick list of tenant-friendly states to avoid (not in order):
Here are some landlord friendly states to invest in:
The only way to avoid a bad tenant applicant is to screen properly and reject them!
These steps simply won't help you once you've already put a tenant in place. Once the bad tenant is living there, the only way to get them out is to evict them, which takes time and costs a lot of money.
Instead, take some extra time up-front to screen them, interview them and their contacts, and do all the investigation you can. An hour of time now is worth months of frustration!
What else are you doing to screen tenants?
Eric is an investor that achieved financial independence at the age of 30. He started in 2009 with the purchase of his first triplex and now owns over 470 units. He spends his time with his family, growing his businesses, diversifying his income, and teaching others how to achieve financial independence through real estate. Eric has been seen on Forbes, Trulia, WiseBread, TheStreet, and other financial publications.
I started out as a full-time student, over $60,000 in debt, and didn't even have a full-time job (two part-time jobs).
Learn the system I used to create a 6-figure passive income.
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