E-Renter News

As a landlord or property manager, you’ve probably seen it all when it comes to a tenant’s previous rental history reports. The facts are that some of your applicants have lived in non-traditional housing, or where it’s difficult to verify whether they paid on time or had any other problems:

Mom and Dad, Grandma, Aunt or Uncle: What family member is going to tell you that your potential tenant paid rent on time? What if they didn’t pay rent at all? You might get the true story out of a family member, but in general, they don’t make the best references.

Pay-by-the-week motels: These places don’t require applications or leases. They don’t verify employment or do credit checks. They don’t require more than a small payment at a time. Finding out from a motel that your applicant paid on time is not an indicator that they will live up to the terms of a lease agreement.

Their “friend” the landlord: Sure, living in a friend’s spare bedroom or on their couch is a typical living situation. The problem is that if the friend wants the couch back, then giving you a good reference is in the friend’s best interest.

If a tenant presents a previous landlord that doesn’t meet your standards, you are under no obligation to accept it. Consider stating in your application that “Parents, relatives, and pay-by-the-week motels will not be accepted as landlord references.”

Protect Your Property and the Community

Prescreening tenants is a common practice for smart landlords. Checking an applicant’s rental history and credit background are both vital to your rental property business’s success. Before renting to a new tenant, you should know if they are credit worthy or have been evicted by previous landlords.

Credit checks and previous rental history checks can help protect landlords against financial losses. They are the best way to predict whether a tenant will pay rent on time. But as a landlord, you are responsible for more than just your own financial protection.

Keeping crime out of rental properties is a goal every landlord shares. By failing to conduct criminal background checks on potential tenants, landlords risk bringing harm to other tenants and the residents of surrounding neighborhoods. No landlord wants to be responsible for a crime against a family, a child, or a business committed by their tenant.

And crime hurts more than just its direct victims. Quality of life is affected when people are afraid to go outside. Neighborhood home values and rents drop when crime rates go up. Increased crime puts everyone at more risk, including residents, pedestrians, drivers, business owners, and police.

There is no way to prevent a tenant from committing a crime. And since past behavior is a good indicator of future behavior, knowing what’s in a potential tenant’s criminal past is the best way to keep crime out of your property. Conduct a criminal background check on every tenant applicant.

Tips for New Landlords

The economy has helped to turn the dream of vacation homeownership into a nightmare for many investors. If you’re considering turning a vacation home into a rental, or have already, here are some basic tips for new landlords that might come in handy:

• Decide whether to offer long-term leases or make your vacation property a vacation rental, with short-term agreements. Do your research and weigh both the downside and advantages of frequent turnover.
• Consider your tax situation when making your decision. Homeowners can rent their property for up to 14 days without reporting the income to the IRS, which can be helpful if your property is only rented during high-volume times in your area, like New Orleans at Mardi Gras. Consult a tax professional for advice.
• Consult an attorney to review your rental agreement and lease. Loads of information is available online regarding pitfalls to avoid and items to include in your rental agreement.
• Tenant screening is a must for short-or long term rentals. Investing a little amount of money in thorough background checks pays for itself in peace of mind and can prevent financial losses.
• Advertise wisely. It doesn’t have to cost a lot. Spend time online if you’re not familiar with social networking site—they’re ideal for advertising your rental. Setting up a Facebook page is easy. Upload photos and invite friends and family to comment and encourage their friends to visit your page.
• Check out vacation rental websites, and compare their rates and features. If you decide to run an ad, promote it through your Facebook page and Twitter.
• You can also use WordPress to set up a website. WordPress is known as a blogging site, but it’s become a fast and easy way to start a website. Hundreds of templates are available, the site walks you through each set-up step, and help is just a click away if you become stuck.

Making the decision to rent your vacation home is the first step to becoming a rental property owner. Check our archives and come back often for valuable landlord advice!

What Landlords Need to Know

When screening potential tenants, keep in mind that landlords are required to comply to the Fair Credit Reporting Act (FCRA), which was enacted by Congress way back in 1970. The law was intended to protect consumers by ensuring that information in their credit reports is accurate.

Consumer reports are used every day by landlords to verify employment, rental history, and to determine credit worthiness. When landlords use these reports to reject a tenant’s application or take another adverse action, a notice to the applicant is required. (Other adverse action might be requiring a co-signer, a larger security deposit than other tenant’s pay, or raising the rent.)

The notice required by the FCRA must include the name, phone number and address of the Consumer Reporting  Agency (CRA) that supplied the report. It must also include a toll-free phone number for CRAs.

Additionally, the notice must contain a statement that the CRA did not make the decision for the adverse action, as well as a notice of the applicant’s right to dispute the accuracy of the report and to obtain a free credit report within 60 days.

Landlords who deny a potential tenant’s application for reasons other than an unfavorable consumer report are still required to give the adverse action notice in certain cases. For example, if the applicant has a previous bankruptcy, but the main reason for denial was a bad reference from a previous landlord, they must still receive the notice because the bankruptcy was a minor factor in the decision.

Non-compliance with the FCRA can lead to serious consequences; study the law and be sure that you are within its requirements.

Five Easy-to-Implement Tips

Running a rental property business is like any other: there are certain risks involved, as well as rewards for taking those risks. The reward is usually a financial one, although for the past year or so, many landlords have experienced a decline in that area. Still, for the long term, it’s best to minimize your risk of loss to maximize your profit.

1. Avoid lawsuits: learn the federal, state, and local tenants' rights laws that apply to your properties. The Fair Housing Act, Americans with Disabilities Act, and your local statutes are not difficulty to comply with. Knowing their requirements will keep you from violating your tenants' rights—even inadvertently. The onus is on you.

2. Make your property safe: periodic inspections of the buildings and grounds you own are very important. Be on the lookout for tripping hazards on sidewalks, stairs, and common areas. Keep orange traffic cones and yellow hazard tape in your landlord toolbox to block off hazards in driveways, parking lots, and areas of ingress and egress. Keep trees trimmed to prevent injuries or fallen branches.

3. Be sure your property is habitable: plumbing, heat and electrical systems must work properly and safely. Don’t make your tenants suffer with broken pipes, insufficient electrical power, or faulty wiring. Install and test carbon monoxide and smoke detectors, and provide tenants with fire extinguishers. Substandard safety can lead to tragic endings.

4. Help keep tenants safe: installing good locks and adequate lighting can go a long way to preventing crime. Conducting proper background screening on potential tenants can help keep criminals out of your properties.

5. Be consistent: apply the same screening procedures and rules of conduct to every single tenant. When you bend the rules for one tenant, you are at risk for a lawsuit filed by another tenant. Treat everyone fairly and your risk declines.

While it’s true that 90% of tenant problems can be avoided by ensuring, though tenant screening, that you are renting to qualified individuals, it’s also a fact that bad tenants happen to good landlords. And bad tenants are better evicted than tolerated.

Evicting tenants is not easy or fun. Unfortunately, it is a fact of the rental business. If you’re lucky, evicting tenants is not something you have to do often, but every landlord and property manager faces this issue eventually.

Landlords often blame themselves for being careless or missing a telltale sign that an applicant is going to be a so-called “deadbeat.” However, there are professional cons everywhere—in your town, answering your For Rent ads, submitting applications to live in your properties.

The guy who appears to have a great job, high FICO score and cash in the bank might not be who he claims he is—check his identification carefully, and run an ID and Social Security Number check.

The woman who works in management at the large retailer at the mall could be applying for an apartment that she never intends to live in. Rent to her, and you’ll find her credit-risky daughter living there in a month. Rental agreements and leases should clearly indicate the consequences of such a bait-and-switch tactic. Does yours?

The nice-looking family who moved in two months ago could be doing so well because Mommy and Daddy are dealing drugs out of their apartment. While it is not necessary to run your business within a framework of paranoia, it pays to be observant and to keep communication open with your tenants so you know what’s going on in your rental properties.

If you have problem tenants who have broken the contract they entered into with you, an eviction could be an unpleasant part of your future. Most landlords would advise you to start the process sooner, rather than later.

Keeping Excellent Records is Key

Some of our landlord friends might look twice at this title. “Why would you reject a tenant in this market?” And that’s true in many places. Not only are good tenants hard to find—any tenants are hard to find. Even in this economy, every landlord should have a minimum set of qualifications, and a way to deal with applicants who fall below them.

The Fair Housing Act (FHA) prohibits discriminating against tenant applicants on the basis of race, religion, gender, disability, family status, or national origin. Your state may have additional protected groups—and landlords must be familiar with their state and local laws. But there are several legitimate grounds for rejecting an application:

1. If a rental property applicant does not meet your minimum income standard, you may reject them.

2. A poor credit history means you can legally reject a tenant’s rental application.

3. If your rental property cannot accommodate the number of people applying to live there, you may reject them. For example, if a family of five applies to live in your one-bedroom apartment.

4. Foreclosure: while more Americans than ever are defaulting on their mortgages, you may reject an applicant who has a foreclosure in their credit history.

5. Eviction: prior evictions or poor rental history are grounds for rejection.

6. Criminal record: If an applicant has been convicted of a crime (not just arrested), you probably can reject them.

Two important tips when rejecting an applicant are consistent procedures and good recordkeeping. Screen all tenants to avoid claims of discriminating against any single person. Credit checks and tenant background checks will help you decide whether to approve or reject each application—and save you money, too!

Notify the applicant in writing, stating the reason for rejecting the application. Be ready to back up your reasons with proof. Keep all paperwork on file and provide the applicant with a copy of the credit report.

Until the market improves, you might be tempted to waive standard procedures in favor of anyone who will pay rent. But nobody knows if a tenant applicant will actually do so. Be safe, check credit history and criminal backgrounds, and wait for the best possible tenant.

Missing Signs Not the Landlord’s Fault

Talk to ten landlords and you’ll ten different “worst ever” tenant stories. No matter how hard to you work to avoid it, if you’re a landlord or property manager, you will have your share of problem tenants. The people signing your lease agreement can be the nicest, most polite and clean-cut people ever—and can quickly become the tenants from you-know-where.

How does this happen? The problem is that tenants are humans, just like us. They have the capacity to be good or not-so-good—just like the rest of us. And some are skilled at taking advantage of others’ trust to get what they want.

Our nature is to trust and like people—especially when they fit within our personal filters for looks, behavior, and other external qualities. Cleanliness, smiles, and agreeable personalities can mask a host of soon-to-be revealed trouble spots.

Another aspect ofhuman nature is the tendency to kick ourselves for missing the “signs” of problem tenants. “Why was I so naïve?” or “How could I have not seen this coming?” are questions many landlords and rental property managers ask themselves.

The fact is that folks with emotional issues, money-handling problems and violent personalities have to live somewhere, too. They are often quite skilled at masking their problems long enough to get what they want from others—like renting an apartment or house from you.

Proper tenant screening procedures will weed out potential tenants with criminal histories, credit problems, and evictions. If a tenant passes your background check and still causes problems, remember that it’s not because of any failure on your part.

Allowing Unlimited Guests is a Big Liability

Now is a good time to look closely at who is coming, going, and staying at your rental properties. When times get tough, tenants are more likely to throw open their doors to their friends and family who are between apartments, evicted, or foreclosed upon. The problem is that these tenants are also opening you, the landlord, to liability.

Why would a landlord who is diligent about screening every tenant allow anyone with an unknown background to live on their property—even temporarily—as a “guest” of a tenant?  Landlords and property managers should never allow unlimited guest stays for any tenant.

Even if a particular tenant has never caused trouble, pays rent on time, is quiet and clean, their friends and family members may not be. Trusting your tenant and trusting their friends are two different scenarios—and as property owner, you have an obligation not only to yourself, but to your other tenants and the surrounding residents as well. Even if you have not approved a tenant’s guest for living in the rental unit, you could still be held responsible for any criminal or dangerous behavior.

Smart landlords include a visitor and guest policy in their lease agreements, stating how long tenants may have guests—usually seven or fourteen days. Some rental agreements state that no guests are allowed for more than fifteen days out of any thirty-day period, to keep friends from moving in and out.

If you have a guest policy for tenants, enforcing it is vital. Don’t make exceptions for certain tenants—such a practice can lead to charges of discrimination or unfair treatment. It’s easier to explain that you have to apply the same rules to every tenant.

If you do not have a guest clause in your rental agreement, don’t sign another one until you add it. You want to avoid the problem of tenants piling their friends into your rental property without your permission—which is more likely in a down economy. Unknown guests can become unofficial tenants—a potentially dangerous, but completely preventable situation.

Begin with the First Phone Call

In a down economy, it’s more important than ever to perform tenant screening. Vacancy rates are climbing, and some landlords have been tempted to skip this important step. They are learning the hard way that it never pays to do so.

Start the tenant screening process as soon as your telephone rings in response to your advertisement. If your ad was done well, the prospective applicant already knows the basics: that you will conduct a tenant background check and tenant credit check, whether or not you allow pets, and the size of the unit.

Even folks that know they won’t pass a background screening will still call you—they often think they’ll sneak through or that if they’re nice enough, the landlord won’t perform the tenant background check. It’s wise to repeat your screening policy when you have a prospective tenant on the phone. It’s okay to let them know that if they do not meet your standards for employment, credit history, rental history, and criminal history, they will be rejected.

If you have a size limit for pets, state that during the call. Landlords report that even when they state a 20-pound limit, tenants still ask, “What about my English Sheepdog?” If you don’t want a dog that large in your rental unit, say so, and move on to the next call.

The initial phone inquiry is a good time to start establishing a good landlord tenant relationship. Briefly review your house rules, letting the prospective tenant know what behavior you expect. You can also give them an idea of the amenities and level of care you take, and the service they can expect from you.

You can get a feel for tenant’s level of cooperation and personal responsibility by the questions they ask in your very first conversation. If your prospective tenant passes the phone screening, move on to a formal lease application, including notification that you will conduct a background and landlord credit check.