E-Renter News

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.

Prepare to Prevent

Providing secure housing for your tenants is a landlord’s responsibility. Certainly you cannot prevent every possibility of crime, but you can prepare your property to discourage break-ins and other property crimes.

But preventing crime is your tenants’ responsibility, too. Your job is to provide them the means to protect themselves, and educate them on ways to stay safe.

Here are a few ideas:

Window and door locks: This might seem obvious, but strong, working locks on all windows and doors are an absolute must. Do not allow your tenants to change locks. You must be able to have access in case of emergency.

Have a zero-tolerance policy on drug use: Your lease should state that illegal drug use is not allowed anywhere on your property, at any time, by any one. Evict any tenants who break this rule, and your other tenants will see that you do not tolerate it. They will likely appreciate your attempts to keep them safe.

State in your lease whether or not firearms are allowed on your rental property. Check with your lawyer on this one, as you may not be able to prohibit legal firearms. You may certainly prohibit illegal weapons!

Maintain adequate exterior lighting. Motion lights are a great way to provide safety just when it’s needed—and to discourage would-be prowlers.

Make sure doors and windows are not covered by shrubs or trees. Visibility is vitally important—break-ins occur more often when the perpetrator is hidden. If you plant anything near a window, consider shrubs with stickers to make illegal attempts to access more painful!

Tenant screening is the number one way to prevent crime! Increase safety by ensuring that you have law-abiding, honest tenants in your properties by conducting tenant background checks. They and their friends and visitors are less likely to be involved with drugs and other criminal activity. Many burglaries are carried out by friends, visitors, or acquaintances of residents.

Fraudulent Activity is on the Rise

When times are tough, desperation drives more folks into trying to take advantage of others though fraudulent attempts to rent property. If you’re a landlord or property manager advertising rentals on Craigslist.org, you may have received fraudulent emails. Or you might have been approached in person by rent scam artists.

What should landlords watch out for when it comes to rental scams?

Often, rental scammers offer to pay several months’ rent and security deposit up front, before they’ve even met you or seen the property. If you have a potential tenant who insists on sending you a cashier’s check or money order for you to cash, you should see red flags. Cashier’s checks and money orders can be reproduced easily. The lesson: don’t take the “For Rent” sign down until you have a signed lease application in hand, run proper tenant screening, and know that the tenant’s check or money order has cleared your bank.

A similar scam involves distant" tenants" who want to rent sight unseen, and offer to deposit funds directly to your bank account. Their letters of inquiry can sound very legitimate, stating that they are employed overseas, moving back to the U.S. very soon, have great credit, don’t smoke, etc. Then they request your bank account number to complete the wire transfer of funds. Remember to never give out your bank account numbers, even if the promise of several months’ rent up front seems too wonderful to be true—because the scammer has every intention of accessing your funds, not adding to them.

Another prevalent overseas scam involves a phony tenant who offers to send the landlord a cashier’s check or money order for more than the required deposit, with the request that the recipient wire the excess funds to an escrow account or agent. The victim deposits the check or money order, wires the funds, and then discovers the check or money order was a fake. The landlord is out the amount of the phony check or money order, plus the money that was wired.

Sometimes scammers will pose as potential home buyers, who then fabricate a story about needing to rent the property for several months before buying. Their reasons could be wanting to make sure the home fits their needs, because they’re waiting for their previous home sale to close, or to make sure they’re not allergic to the carpet or drinking water. Perhaps since the potential house sale is attractive, many landlords go along with a short-term lease, only to find out the tenants never planned to through with the sale. The scammers hope to find a landlord who lets their guard down based on a good story, and who waives normal tenant background screening procedures.

Finally, be aware of imposters who pose as you, the rental property owner. These swindlers show potential tenants around the outside of the property, take their application and security deposit money, and head for the hills! It might seem implausible that anyone would fall for such a con, but professional scammers are great actors, tell a great story, and make a living by making people give them their money. They’re very good at it!

Is it Legal to Reject?

If you’re a landlord, you must stay current on federal, state, and local laws that cover access to fair and equal housing. The federal Fair Housing Act prohibits discrimination against tenants based on race, religion, marital or family status, color, national origin, sex or disability. Many states also prohibit discrimination based on sexual orientation.

But what about the tenant applicants who dress or present themselves in a manner you consider inappropriate?  Certainly everything is subjective—some folks can’t have enough tattoos and others can’t stand them. But what the FHA and your local/state government considers discrimination is anything but subjective. You cannot reject an applicant for rental housing if they fall within any protected group.

So are body piercings, loose or revealing clothing, tattoos, and other personal appearance choices considered protected? No. A landlord may reject a tenant for any reason—including clothing choices and body adornments—other than those listed by the FHA and your local and state laws.

Landlords should be cautious, however: if you are rejecting tenant applicants based solely on their appearance, and they are also of a protected class, you could be asking for an accusation of discrimination.

When faced with an applicant whose appearance you just don’t like, but who passes your entire tenant screening process with flying colors, you may just have to adjust your concept of what is acceptable—especially in this market. You might just be surprised that, despite your preconceived notions, the tatted, pierced young person before you is your most pleasant and responsible tenant ever!

Choose the Right Tenants and Manage them Properly

Landlords love to commiserate on the challenges of renting property—like plumbing leaks, constant painting inside and out, flooring replacement, appliances breaking down, heat and air conditioning systems quitting.

But these are all building issues, and even though they are a big part of the rental property business, they can be managed. The even bigger headaches we hear about come from the people side of investing in rental property—managing tenants and their issues:

• Paying rent late
• Damaging your property
• Breaking leases
• Ignoring the rules
• Making too much noise
• Illegal activity in your rental units
• Eviction hassles
• Cleanliness

Most landlords we know agree that tenant problems are far and above more aggravating than building problems. Perhaps they forgot that the landlord business is first a people business. If you’re not doing a good job of managing your tenants, you might need to brush up on your people handling skills.

And most tenant problems can be avoided before they start, by following two rules: 1. choose your tenants wisely, and 2. manage them properly.

Choosing the right tenants starts with making your property attractive so that people want to call it home. Next, advertising your property with well-worded ads designed to appeal to your target market (without discriminating), and when the phone starts ringing, pre-screen your potential tenants to make sure they can afford your rent. Require a thorough application and let applicants know you always conduct tenant background checks. Screen every applicant, every time.

Once you choose your ideal tenant, communicate clearly—and often. Your lease should spell out exactly what you will and will not do for your tenants. It should also list your expectations from them. Do not let your tenants think you are a pushover, or they will test your limits. Let them know you enforce your lease and your rules fairly and consistently with each and every tenant.

Let your tenants know you are a hands-on landlord, that you will be on the property often to check on things, and that they can always call on you for emergencies or other needs. Give them incentives to stay, and take immediate action if they break the rules or are neglecting their responsibilites.