Always be screening tenants the right way when finding a potential tenant.
An explosion of expletives rang out over the phone.
“It’s because you are a convicted felon. That is why we cannot rent to you.” My Property Manager stated to a prospective tenant.
“What! That is discrimination! I’m going to sue your @** and take all your money! You piece of $***!” said the prospective tenant.
“Oh, well, your income is not sufficient too…” my property manager stated as he tried to pull his foot out of his mouth.
“Ya, right, I know what you are trying to do you F***er. You won’t get away with this.” the tenant said.
“Sir, I’m sure you will be able to find another place but this property is not available for you. Thank you and good bye.” My property manager said as he hung up the phone.
This type of situation can and will come up with your rental property business. There were many things that should have gone differently in this interchange. I’ll explain how this conversation should have gone in a little bit.
If you have one rental property or multiple, there are two decisions you must make wisely if you want your business to succeed.
- Selecting the right property to buy. Its location, size, shape, etc.
- Selecting the right tenant for your property. Screening tenants is crucial
The rental property business depends on the longevity of the tenant in the property. The longer they are in the place, the more money you will make. With the turnover of a tenant, there are major losses in income. Here are a few:
- Loss of rent – As little as 2 months and as much as 6 or more
- Cleaning and fixing-up property
- Eviction fees
- Homeowners Insurance
These expenses could add up to thousands of dollars. Each month the property is not rented, money is flowing out of your pocket. The best way to avoid these expenses is to find the right tenant the first time and avoid this altogether.
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How to Find The Right Tenant
Single Adults without Children
Single adults can be very transient. They move from place to place easier because they do not have as many responsibilities and things that are keeping them in one place. They only have to worry about themselves. No children or spouse to influence any decisions they may need to make.
With children, they are tied down to the specific school and for the school year. Parents do not want to move their children in the middle of the school year. It is hard enough to move, add in the aspect of finding a new school, making new friends, and navigating the school system is hard for most parents.
With a spouse, an extra decision maker is in the picture and will influence any decision.
Single people also change jobs much easier and faster than married couples. There is less responsibility on their shoulders to keep a job. No one is counting on them to keep a roof over their head and food in their stomach.
In all, single adults are much riskier to rent to because they can and will move out quickly.
I have one property in Texas that is not currently rented. The tenant moved in on December 15th and moved out on April 5th. I can say that I saw this one coming for one simple reason. The tenants were dating.
Think back to when you were in high school. How long did 95% of all dating relationships end up? They ended in a break-up, that is how. It seemed as though just about every relationship that starts, ends in months, if not weeks. This is not an age thing. It is a relationship thing. When two people start to date, things are great. Each person hides their real self from the other and puts their best foot forward.
Only after the excitement wears off does the real person, with all their quirks shows up. This is when the relationship has the potential to go bad.
What was a good deal, has now become and ordeal, and the two now begin looking for a new deal.
This process becomes much more drastic when couples move in together before they are married. This is called cohabitation. Leaving the morality of cohabitation aspect aside, just looking at a 2002 report from the Center for Disease Control should make you hesitate when renting to a cohabiting couple.
“The probability of a first marriage ending in separation or divorce within 5 years is 20 percent while the probability of a premarital cohabitation breaking up within 5 years is 49 percent. After 10 years, the probability of a first marriage ending is 33 percent, compared with 62 percent for cohabitation.”
And this report was written in 2002. Imagine what this report would say in 2017? I can only imagine that it would be even worse for both cohabiting and married couples ending the relationship.
From this report, we can see that cohabiting couples are 250% more likely to split in 5 years than married couples.
Those are not good numbers for your business.
With this being the case, cohabiting tenants can be a very risky proposition for you as a rental property business owner. Doing what is best for your business is the only concern that you should have when finding a tenant.
Once the dating couple breaks up, you have just lost your tenant. It is very unlikely that one of the two will want to stay in the property while the other leaves.
It is my experience that both always leave. Be it because they no longer have a sufficient amount of income to pay the rent or they don’t want to be reminded of the other, they always move out. And when I say always, I mean ALWAYS.
Without fail, they move out or need to be evicted.
This is why I prefer to rent to single or married people. Either of which have a longer track record of staying in the same place than those who are dating. I will say that I have rented to many people who are dating but I am prepared for them to be gone in a few months.
Check To See If You Should Rent to the Single Adult or Cohabiting Couple
An easy way to check to see if you should rent to a dating couple is to see if each person can afford the rent, living expenses, and life expenses on their own without the other. The single person and the cohabiting couple must have the necessary income in order to afford rent and the expenses that life brings.
Let’s say the rent for one of your properties is $1,300 a month. If you are to rent to a single adult or a cohabiting couple, a little bit of math will help you make a right decision.
For my rental business, in order to rent to a single adult or a cohabiting couple, each person’s income must be enough to cover the rent, living, and life expenses on their own.
For a cohabiting couple, a quick rule of thumb for this is to make sure each tenant earns 200% of the rental amount. For the $1,300 rental, each person must make at least 2 times the rent a mount.
$1,300 x 200% = $2,600
When you add up regular expenses that come with life, it is easy for anyone to go through the extra $1,300 in one month.
- Cell phone bill: $55
- Cable TV: $80
- Home internet: $50
- Home phone: $20
- Car payment: $250
- Car insurance: $50
- Electricity: $200
- Utilities: $75
- Gasoline: $100
- Food: $200
- Entertainment: $200
As you can see, things add up quickly and that extra $1,300 is gone in no time. If you look at these numbers, I have actually been very conservative in the totals. I’m sure there are many other expenses that I am not accounting for.
For me to rent to a cohabiting couple, one of the two options below must be met.
- Both individually must make 200% of the rent amount EACH
- Tenant 1: $2,600
- Tenant 2: $2,600
- Total: $5,200
For a single adult, the numbers are a bit different. The prospective tenant needs to earn 300% of the rent amount to cover the rent if the other moves out
- Tenant: $3,900
- Total: $3,900
Even if these tenants fulfill the financial criteria, they still have a high probability of moving out very quickly after they move in.
What To Say When Turning Someone Down Who Applied
This question has a very simple answer.
Say as little as possible.
After an applicant has shown to not fit your rental criteria, all you need to say is that they did not meet the qualifications. Leave it at that.
DON’T SAY ANYTHING THAT CAN BE TAKEN AS DISCRIMINATION.
Obviously, discrimination is abhorrent and should NEVER be done. What you are doing is setting up financial qualifications that any tenant must meet in order to move into the property. No tenant has the “Right” to move into your place. It is yours and you can do with it whatever you want.
The conversation can go like this:
Prospective Tenant: Hi, we would like to move in right away. Have we been approved and when can we move in?
You: Hi, and thank you for applying to rent this property. Sorry but you have not been selected to rent the property.
Prospective Tenant: Oh, why not? We really like the place.
You: The income you included in your application is not sufficient for the property.
Prospective Tenant: What is the amount needed to get the property?
You: That is not something we can disclose. Thank you again very much for applying. Take care. Good bye.
The prospective tenant may push and pry to get more information than you are willing to give. Don’t give in. Just keep saying we can’t discuss it and thank you for applying.
Remember the convict that was cussing up a storm at my property manager earlier? This is exactly how the conversation should have gone. Straight to the point with the one criteria, being financial, as the reason not to move forward with their application.
Even if the prospective tenant has enough income, it is still your prerogative to rent to whomever you desire. If the financials are not the issue, just tell the prospective tenant that the landlord is reviewing all applications and has not made a decision.
This tenant will most likely move on to find another rental and not press any further.
The Ideal Renters You Should Try To Rent To
The most ideal renters are going to stay in your property for more than 2 years. I have had properties where tenants have lived there for 5, 7, 8 or more years. These tenants are the best for your business and you need to appreciate them for the terrific customers they are.
Married Couples with Kids
Married couples with kids are some of the best people to rent to. They desire to settle down, place roots down, and have their kids enter a local school.
Married couples tend to have careers, not just jobs. They know they need to provide for their family and must stay employed. Quitting because they are mad at their boss is very unlikely.
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Married Couples with No Kids
Like married couples with kids, they have lots of responsibilities and obligations they must take care of. Also, married couples without kids will not stay that way for long. Kids will most likely come sometime in the future.
Older Single Women
Women are created by God with less physical strength than men. Add age to the equation, and older women are even less likely to move because it is much harder for them to do so. They need to have many people help them pack, load, move, unload, and unpack.
Also, many older single women are on a fixed income. Social security, husbands pension, or retirement would make up the most of their income. The income comes in whether they work or not. That means your rent keeps getting paid if they have a job or not.
Single Parents with Children in Local Schools
Like married couples, single parents have a lot of responsibilities. Job, children, childcare, etc. make single parents good tenants for your properties. Basically, children are a huge deciding factor for tenants to stay in your rental property. Parents like to keep their kids in one place and not move around much.
So, what other criteria do you have when selecting tenants? There are many others factors and I’d love to hear your stories.
Leave a comment below.
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