screening tenants | InvestingInProperties.com

The stereotypical view

The “angry tenant” is such a classic stereotype in our culture, but the image exists, and dealing with a difficult tenant is always dreaded by property investors. Certainly the best investment property advice simply states that you must be wary of installing any potentially disastrous tenant in one of your units. An angry tenant can quite literally rob you through non-payment of rent, and take any positive cash flow investment down into an abyss of red ink in very short order.

“One Bourbon, One Scotch, One Beer”

In our culture, for me, the quintessential angry tenant is represented in George Thorogood’s 1977 recorded version of a classic blues song written by Rudy Toombs and covered by John Lee Hooker, “One Bourbon, One Scotch, One Beer.” In it, Thorogood created a mash-up of the original song by combining it with another Hooker recording, “House Rent Boogie,” which serves as a background storyline to explain the singer’s predicament.

“House Rent Boogie” describes the events that occur after the singer has lost his job. Unable to pay his rent, he tries to gain temporary lodging with a friend, but is unsuccessful. He then lies to his landlady that he has gotten a new job, and is then able to return to his apartment, but proceeds to remove all his possessions. He then goes to a bar and orders the three drinks to help him drown his sorrows. All the while stiffing his landlord:

“So I go back home I tell the landlady I got a job, I’m gonna pay the rent She said yeah? I said oh yeah And then she was so nice Loh’ she was lovy-dovy So I go in my room, Pack up my things and I go I slip on out the back door And down the streets I go She a-howlin’ about the front rent, She’ll be lucky to get any back rent She ain’t gonna get none of it”*

The cost factor

There can be quite a few interpretations when you mix a tenant’s anger, stereotypes of uncaring landlords, and blues music all rolled together. But let’s face it – as a property investor, you want to avoid the angry tenant at all costs. Obviously, because it will cost you plenty. Just as the song alludes…

I’ve got to wonder if George Thorogood owns any rental properties these days…you know – setting up that nest egg for himself. And if so, what does he do when encountering an angry tenant? Smash his guitar over the tenant’s head? Now that would make for a slightly ironic visual image…

Hold onto the good ones

One thing is for sure: the best way to avoid a bad tenant is to select a good one. But even more importantly, you’ll want to hold onto the good ones. Without a doubt, the cost to keep a good tenant is a fraction of the cost of dealing with the negative effects and destruction a bad tenant can cause.

We already know that for several years now, the U.S. has been evolving from a nation of homeowners to renters. As numbers rise for total renters, so does the incremental rise in real estate investors who look to buy investment properties. But only the savviest of investors will see positive cash flows on their investments.

A property investor’s misconceptions

Usually property investors who are not getting the returns they planned think they bought poorly. They think that either they didn’t buy a property in the right location, or they bought it for the wrong price. However, the more valid reason for not showing positive cash flows is that the investor did not do their homework properly. They may have underestimated their total expenses, or gross revenues from rent, or both.

But probably the single greatest greater factor in failing to buy investment property with a positive cash flow, is simply poor management of one’s properties. This includes doing a poor job of selecting good tenants.

How to find the best tenants

When you screen for tenants, don’t be afraid to research your prospects in great detail. This includes performing a credit check on them as a start. You’ll also want to speak with their current and previous landlords to get a sense of how reliable your prospective tenant may be. In addition, ask about any problem or complaints the former landlord may have had with them. Another good tip is to actually visit their current home. Look for how they maintain it, since this will be an excellent sign of how they will treat your unit. In addition, try to speak with their employer about their length of time on the job, as well as their prospects for future employment with the same firm.

Make nice with your tenants

Once you’ve chosen your new tenant, be sure to ingratiate yourself with them (thus helping to explode the stereotypical landlord image, noted above). On their first day, meet with them to go over the operation of appliances in the unit, as well as to discuss area amenities they should check out. It’s also a good idea to offer them a small housewarming gift too. Remember, this is a business. And it’s always easiest and least expensive for any business to retain clients than it is to search for new ones.

Collect in person

Finally, when it comes to collecting rent, do it in person. Time consuming? You bet! But you’ll have the chance to meet face to face with your tenants once a month, ask about any problems they’ve encountered with their unit or the area, as well as check on how well the unit is being maintained – all at the same time. And that’s what I call good preventative maintenance.

In addition, when you are acting as your own property manager, you should be acquiring properties that are no more than a half an hour away from your own home. If anything major were to go wrong in an emergency, you’ll be grateful you live close by.

Buy investment properties intelligently

With over three and a half million single-family rentals in this country right now, and growing daily because of increased rental demand and the foreclosure crisis, looking to buy investment properties is an intelligent addition to any investment portfolio. Just remember to crunch your numbers conservatively, and find only the best tenants when screening. Be sure to avoid those stereotypical “angry tenants” at all cost.

photos courtesy of hdwallpapersfix.com,

jackbrummet.blogspot.com, songkick.com, rottentomatoes.com,

allpropertymanagement.com, abreupropertylistings.com, doityourself.com,

neighbors.denverpost.com, moneycrashers.com, activerain.com

How to determine if using a property manager makes sense for you

Property management companies traditionally charge 10% of your monthly rent roll as their fee for their services. However, it’s not a rule, so by all means shop around. With traditionally tight margin levels in investment properties, their fee could be the difference between running a positive cash flow or a negative one on your property. So you should first crunch your numbers for each of your rental buildings, to ensure you can afford their services.

Are you tempermentally suited to property managing?

Once you’ve considered the economic effect of hiring a property manager to manage your real estate investment portfolio, and as you develop your property investment strategy, you’ll need to determine if your personality type works well interacting with people, because you’ll be dealing with loads of people if you choose to act as your own property manager.

You’ll need to be showing your units for rent, screening tenants, choosing them, and then make monthly rent collections. In addition, you’ll be dealing with a list of trades people when it comes to basic maintenance on your property (landscaping, lawn cutting, snow plowing), as well as repairs (mostly plumbing and electrical). Sometimes, hiring a handyman you’re comfortable with can suffice, as he can perform many of these tasks as a general all-in-one repair/maintenance service person who‘s “on call” for you.

Also, you’ll need to ask yourself if you’re okay with emergency calls from tenants – whether in the daytime, or in the middle of the night and on weekends. If you’re a calm person who’s good at “putting out fires” without it taking an emotional toll on you, then by all means you’ll be a good property manager for your own real estate holdings. If not, look towards hiring a professional property management company.

The basic responsibilities of a property manager

Deciding on choosing a property manager, the supervisor of all your property investments, is no simple task. Here are the most basic responsibilities of property managers:

1) Maintaining your rental property – Managers will be responsible for regular on-site checks on your building(s) to ensure proper safety and regular upkeep/maintenance. They’ll also be responsible for all emergencies (ie. – emergency calls from tenants), and making sure the right tradesperson is called to fix the problem, as well as follow-up to ensure the problem was fixed properly, quickly, and resolved to the satisfaction of your tenant – all at the most affordable cost to you.

2) Advertise, locate, screen and approve all tenants (usually with owner’s approval). Show your rental units that are vacant. Prepare all leases, and have them signed.

3) Collect rent from all tenants. Make all collection calls on delinquent tenants.

4) Represent you in any tenant eviction process, if necessary. Work with your attorney to aid in a smooth eviction.

5) Keep all accounting for each property – including the holding of bank accounts for security deposits, rent, and debiting the rent account for all expenses incurred on the building.

How to choose the best property manager for your situation

Make sure you use a very local management company – an agency very close to your property (or properties). You’ll really want to choose a managing agent that knows your area very well, and the vagaries of each neighborhood too. This will be invaluable when they need to show your vacancies, as well as help choose the best tenants for your units.

In addition, be sure to do your homework on each potential managing firm. Make sure to get references from them, and speak directly with those clients to get a good idea just how responsive (and responsible) each managing agency has been with their clients.

View other buildings they manage

It’s also a good idea to drive by several properties your prospective property manager actually manages, to get a sense of how physically well kept up each property has been. Are they attractive ? Do they have curb appeal? Or, are they run down, and in need of repair. If the latter, ask the property manager why they remain so run down.

Once you have gathered all this information, you’ll be able to make a proper decision as to the clear-cut choice for your property manager. And it’s a major decision, like most of the decisions outlined in this investment property information series, since they will act as the main overseer of your entire rental real estate portfolio.

photos courtesy of propertymanagersandiego.com, denalipm.com, homeguides.sfgate.com, dcmud.blogspot.com, carterrealtyagency.com, sanpedrosquareproperties.com

Investment Property Advice: Beware The Angry Tenant