The Biggest Mistakes that Landlords Make

In this seven-part series, learn about the biggest mistakes that Landlords make and how to avoid them.

 

Mistake #1 – Selecting the wrong Tenant

The #1 key to success as a Landlord and real estate investor is finding a great Tenant that will pay the rent on time and take care of the property.  Plain and simple.

Finding that great Tenant is where the challenge begins.  Your Tenant screening process needs to be systematic and comprehensive, so that you can find the best of the best.

This may seem obvious, but you’d be surprised by how many Landlords take the short-cut and accept the first person that comes along.

Why does this happen?

• • They’re under financial strain and desperate to get the unit rented.

• • Lack of patience.

• • They don’t have the time for due diligence.

• • They don’t know how to properly screen a Tenant.

• • They don’t know what supporting documents to ask for.

• • The Tenant offers a lump-sum payment up-front as incentive, usually to overlook red flag on their application.

• • The Tenant was referred by a friend, acquaintance, or family member.

• • The Tenant offers to do repairs/improvements to the property, usually for a rent discount.

• • The rental unit is of low-quality and/or in a bad area.

• • They feel sorry for the Tenant’s situation and want to help them out.

• • They trust the Tenant on face-value, without doing the due diligence.

In most cases, things start out just fine, but eventually start to slip.  The Tenant starts paying late, then missing payments, then not communicating.  The Landlord doesn’t handle the situation properly and the downward spiral begins…

How do you avoid choosing a bad Tenant?

This whole situation could have been avoided by doing the due diligence (aka Application Process, Background Check, Tenant Screening, Vetting Process), no matter where the candidate came from or what their story is.  It doesn’t matter if they were referred to you by a co-worker or family member, always run them through a vetting process.  It doesn’t matter if the Tenant entices the Landlord by offering to pay for one year up front (happens all the time and is a major red flag!), do the due diligence.

This might seem extreme and uncomfortable in some cases, but owning a rental property should be ran like a business.  Your rental business.  And like any business, it depends on consistent revenue to make it work.  You’re also handing over a property worth hundreds of thousands of dollars to a stranger.  You need to make sure that the person taking possession of your valuable asset is qualified and trustworthy and that you feel good about it (that Gut-feeling).

What’s the best way to screen a Tenant?

• • Create good-quality Ads with nice photos.

• • A reasonable Rental Rate, based on market conditions – not too high, not too low.

• • Meet the Candidate in-person and get a feel for them.

• • Ask questions to uncover their story – what’s their history, why are they looking to rent your unit, who will be living in the unit.

• • Listen to your Gut – you’ll have a nagging feeling if something isn’t right.

• • Have them fill out an Application.

• • Request Supporting Documents, including Credit Report, Job Letter and recent Pay Stubs, Photo ID.

• • Check References, especially their Employer.

• • Social Media checks – how they behave on Social Media says a lot about a person.

• • Social Media checks on their References, especially their Employer and Supervisor.

• • Confirm Credit Score on platforms such as Front Lobby and SingleKey – Credit Reports can be easily falsified.

What ‘Red Flags’ should you be looking for?

• • Inconsistent, missing or false information.

• • Dragging their feet on giving you the information that you requested.

• • Not being able to find them or their employer on Social Media.

• • Employer not calling you back for a reference check.

• • Not providing previous Landlord contact information.

You also want to assess:

• • Their ability to pay – do they have enough income to cover their expenses?

• • Will they be a good fit for you, the rental unit and other Tenants (in a multi-unit building)?

In the end, you want to feel good about having the Applicants move into your property.  You want to select someone who you feel that will be a pleasure do deal with on a day-to-day or monthly basis.  You also want someone who’s not going to be overly needy or helpless, as that will eventually be drain on your time and energy.

Want to learn more about the process we use at East Vista to find great Tenants for our Clients? Click HERE to read this informative article.