Landlords are always looking for a great tenant. The question is, how do you find one?
I was online earlier and someone ask everyone in a group if they have had mostly good paying tenants or mostly bad paying tenants over the years. Of course, the answers were all over the board. Some landlords had mostly great paying tenants, others had mostly bad paying tenants and some were in the middle. Many wondered why that is.
I can tell with absolute certainty that those landlords who have mostly good paying tenants have systems that they use every single time to find their tenants. Systems are the key to running an efficient business, no matter what you do. Without systems, your results will just be a flip of a coin . . . sometimes good, sometimes bad but never predictable.
When I look for a new tenant, I have specific systems that I use. I can tell you that I have mostly good paying tenants.
I am very thorough and I only deal in facts. Over the years, I have learn the hard way to stick to the system and my rental criteria and not make exceptions. Every single time I helped someone out, gave a second chance, listened to a sad story, etc., I ended up making a bad decision.
These people are not bad people but they do lack the necessary skillsets to keep a job, budget their money and pay their bills on time. I am not taking on a fully grown adult to finish raising and teach them how to manage their money. They either have these skills or they don’t. I look for only the very best tenants and these people have a proven ability to pay not just their rent on time but all of their bills. Again, I have learned that once they fall behind on other bills, it is just a matter of time until they can’t pay the rent.
Because I have these systems and rental criteria, I have very few problems. When I do have an issue, it is because of something that I couldn’t predict. I have a tenant that has been with me coming up on two years and he all of a sudden can’t pay his rent. He told me that he was fired from his job and was too embarrassed to tell me why. This gentleman had been on his job for a little over 5 years and worked for a large, well known company. There is no way to predict this. But, he knew he couldn’t pay and voluntarily moved out.
The easy answer to “How to find a great tenant” is to do your homework. Have systems and rental criteria in place and follow them every single time.
Grab My Pre-Screening System
My pre-screening system is very effective at quickly identifying those people who don’t meet my guidelines. I have put together all of my questions as well as two free training videos. You can grab them here.
Finding a great tenant is the goal of every landlord but in order to determine if someone has the potential to be a great tenant, reading a credit report is something you have to learn to do.
Unfortunately, landlords find this process to be intimidating. I have seen a lot of different credit reports over the years and I have to agree that some of them are very difficult to look at and interpret. Finding a credit report that you like the look of and using the same credit report every single time makes reading a credit report a lot easier.
The issue that I have been running across a lot lately is that applicants are lying more than they used to. At least that is what I have found.
I pulled out a credit report that I just ran and I am going to talk about it. Obviously I can’t show you the entire report but I will go over the important things to look at. I pulled this one out on purpose because it is a little more complicated than your average situation.
Systems
There are some things that you need to know about me. I use systems for everything I do, including finding a new tenant. I have a pre-screening system that I use. The first thing that happens when someone wants to see a property is that I email them a pre-screening form to fill out. If they meet my guidelines, they get to tour the property and then apply. This allows me to sidestep anyone who tells me up front that they don’t meet my guidelines. I also only deal in facts. It is very easy to get derailed by someone who gets in front of you with a sad story. I don’t allow myself to involve emotions in this process. While I feel terrible for some of these people, I stick to facts!
This applicant first filled out the pre-screening form and appeared to meet the guidelines. He then toured the property, loved it and applied. Everything looked fine after reviewing the application. He had attached a document called “Income verification” and it wouldn’t open. I went ahead and ran credit and asked him to email me the document directly.
Property Details
3 bed, 2 bath property.
Rent is $1,200
Deposit is $1,200
3x the rent is $3,600
Requirements Stated On Application
Income of 3x the rent.
At least 12 months on job. Job history can meet this in many cases.
At least 12 months of rental history. I require this for single family homes.
Credit score of at least 600.
Information Provided By Applicant On Pre-Screening Form And Application:
Stated Gross Monthly Income: $4,000
Stated 2 years on job.
Stated 2 years of rental history on pre-screening form.
Stated credit score of 710. Further stated that he had excellent credit.
Income statement attached but couldn’t open.
His Credit Report
Credit score 559.
Total debt: $53,788
Debt in collections: $52,883
Mostly student loans.
Car payment behind 3 months.
Income Statement
Was actually a letter of intent.
Training Pay $18.22 per hour and $27.33 per hour OT.
Once training is complete, promoted to recruiter.
$865.38 base per week starting week 23.
$45,000 annually.
ISSUES:
There are several issues with this applicant right off the bat.
This person stated that he has been on this job for 2 years. That is inaccurate as he has attached a letter of intent dated April 22, 2022. It is April 28, 2022 as of right now. He hasn’t even started his training! Remember, he put that he was on his job for 2 years.
The “income state” or proof of income is just a letter of intent with no pay stubs.
The base training at $18.22 per hour is the pay for 13 weeks of the 26 weeks and isn’t income of 3x the rent.
The credit score is below 600 which is stated in the online listing and the application.
He has a large amount of student loans and a car payment in collections at this point. He hasn’t paid on the car in 3 months.
I am also concerned with the large amount of debt in collections =>$42,883
He doesn’t have any rental history at all. I asked him about it and he said he lived with family while in college.
This is one of those applicants that annoys me. He was very nice and I liked him. But, we started off on the wrong foot when he lied about his job history. Yes, those are strong words but I have a huge problem with any applicants who doesn’t tell the truth right off the bat. I asked him why he put that he had been on his job for 2 years and he said that he had signed a contract with them for 2 years. I told him that I considered this to be a lie since he hadn’t even started his job yet. He said “It was an honest mistake”. I didn’t see it that way. A letter of intent is not job history.
He had also put on the screening report that his credit score was 710 and actually said that he had excellent credit. I called him out on that also. He told me that he had never run his credit before and had just guessed. Someone told him that most landlords don’t run credit so he shouldn’t worry about it. He was shocked when I ran it and he saw how low his credit report was. He said that he intended to start paying on his student loans once he had a job.
He was also untruthful about his rental history. Again, he said he didn’t think that I would check.
I have a serious issue with any applicant who lies and will always disqualify them. They will only get worse as time goes on. The credit score also disqualified him for me because it was just too low. If you don’t believe in having a pass / fail credit score, have a way to mitigate your risk. I will accept down to 575 with an extra deposit and / or a co-signer.
His income is also an issue because in the beginning, he won’t meet the 3x the rent threshold for 13 weeks. Moving is expensive and he will have to put out a lot of money just to get in. Income is something that is always a pass / fail criteria because when you make exceptions, you can harm an applicant or tenant.
Rental Guidelines And Rental Criteria
I have guidelines and I make no apologies for having them and sticking to them. Following my rental guidelines and having rental criteria have saved me from renting to a lot of bad tenants. I don’t like chasing after tenants who don’t pay. Evictions make me angry! It means that I screwed up somehow by renting to a tenant. Bad tenants are usually not bad people but they do lack the skillsets to make them successful tenants.
My message is simple. Stop renting to bad tenants! Have rental guidelines and rental criteria and stick to them every single time. Run credit so that you know what you are getting into!
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Landlord Tip – Why You Should Have Rental Criteria
Rental criteria are crucial for every landlord. They help you quickly identify prospects and applicants who have trouble paying the rent on time and in full every month.
Having written guidelines also keeps you within the Fair Housing Guidelines. Your screening process should be transparent so that you can easily defend yourself from a claim of discrimination. Your written guidelines should be fair and objective so that every prospect and applicant is treated consistently and fairly.
A detailed rental criteria checklist provides you with:
Standard guidelines.
Fair and objective review.
Takes the emotion out of the process.
Makes it easier to make a decision with specific guidelines and criteria. Freedom from possible discrimination accusations.
Examples of Written Guidelines
Written guidelines don’t have to be complicated. Suggested guidelines include:
Rental income guideline of 3x the rent.
A job history requirement.
A rental history requirement.
Credit score requirement.
An eviction filing process.
Conviction history.
These are common rental criteria to have. The more strict your guidelines are, the harder it will be to qualify a tenant. For lower end properties, you will need to have more lenient guidelines. If you have nicer properties, you can have higher criteria to get better tenants.
Your goal should always be to find a great tenant who has a proven track record of paying their rent and their other bills on time and in full each and every month.
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Tenants who pay late are very common. If you are lucky, they call you and explain why they are paying late. Other tenants don’t bother to let you know and just randomly pay.
These late paying tenants are a serious problem if you count on the rent money to pay your mortgage. Even if you don’t depend on the rent money to pay any bills, it is very annoying when your tenant continually pays rent late.
Procedure For Handling Late Paying Tenants
Unfortunately, you cannot force anyone to pay. You need to fall back on your procedures for ensuring that the tenant knows what happens next.
Always send out the appropriate late notice. Know the laws in your area. Be sure and consult with an eviction attorney so that you can give the proper notice to your tenant. I live in Louisville, KY and we send a 7 day notice that basically says pay or get out.
Once notice arrives, the tenant will usually touch base with me. If this tenant has already called, this person was warned that they would be receiving the 7 day notice. I do occasionally run across a tenant who is offended that I won’t just “trust” them to pay the rent as soon as they can. I explain that company policy require me to send a 7 day notice to every tenant who has not paid on or before the 5th day. We have a 5 day grace period.
The late notice should list the past due rent and any late fees. I have a $50 charge on the 6th and $5 per day after that. So, if the tenant pays on the 10th and their rent is $1,000, the tenant would owe $1,065. I don’t charge for the actual day they pay. It is in your best interests to insist that the late fees are paid along with the rent. There are times that I will allow a payment plan, especially if the late fees are high. For example, if the tenant paid rent on the 25th day of the month, late fees would be $140. Many tenants won’t have that much extra money. But, I only allow it to be split in half.
The main issue is that when a tenant pays this late in the month, the chances that they will pay late the following month increase dramatically. Then you are on the path of a tenant who pays chronically late and can’t afford the late fees. At some point, this has to stop and the tenant needs to move. I usually sit down with the tenant and try to get them to move out but I will evict them if I have to. It is much easier and cheaper to get them to willingly move. Not every tenant will be agreeable to just moving but it is what I try first.
Always Pays Late But Pays Balance In Full
I have a couple of tenants who pay late roughly 5 or 6 months out of 12. For one of them, I moved the rent due date because she went on disability and SSI and her payment often didn’t arrive until the 10th or the 11th of the month. She was never going to get caught up and it was just easier to move her due date.
For the other tenants, they randomly just pay late and they always pay the late fees. While this is annoying because I still send the 7 day letters every single month, they always pay the late fees and they never complain about paying them. The company makes more money every month and for now, it seems to be working.
Improved Screening Of Applicants
This issue drives me crazy. I did a review of these tenants to see if I could have spotted these issues during the application process. There were no red flags during the application process that I could find. I always send over a questionnaire for the previous landlord to fill out and none of them flagged these tenants as late payers. It is possible that the landlords just wanted to get rid of these tenants and didn’t say anything.
One thing that stood out on two of them is that while they met the income requirement of 3x the rent, they had no extra money. One tenant ended up losing their job and the new job didn’t pay as much. There was no way to predict that this would happen.
Another tenant had a lot of student loans that they started paying on which reduced their spendable income. Very few landlords count student loans or medical bills but I have started to see some issues with this. Remember, at some point they will have to start making payments on their student loans and those payments can be quite high. In many cases, those monthly payments will cause the tenant to not meet the debt to income ratio. You need to have a process for considering student loans because it can significantly reduce your tenants monthly income.
3 Strikes Rule
Many landlords I know have what I call a 3 strikes rule. Typically, they only allow 2 late pays or 2 eviction filings per year before they move to evict. Once the tenant pays late the third time or has an eviction filed against them for the third time, the landlord will no longer accept the rent. The landlord will move to evict these problem tenants.
I personally don’t have this rule because it is very costly to turn a house and get it ready to rent again. I work with the tenant within reason. I follow the process but if the tenant comes up with the money for the past due rent, the late fees and the court fees, I will accept the money. This is strictly a business decision on my part.
Neither way is wrong and you will need to decide what works for you.
Follow Your Procedures
Late paying tenants seems to be one of the top problems that landlords have. When you have this issue, have procedures in place and follow them.
Spell out in the lease what happens when a tenant pays late and follow through.
Send the late pay letter and charge late fees.
Be prepared to file an eviction against them.
Decide at what point you will no longer accept payments.
How many late pays or eviction filings will you allow?
Following Your Procedures Makes For Better Tenants
The most important thing to always remember is that you are setting expectations for your tenants. When you follow your procedures every single time, they know what to expect. If you don’t follow your procedures every time, you are teaching your tenants that it is ok to pay late. Why should your tenant pay on time every month if you don’t charge late fees or you never start the eviction process by sending out a late notice?
It is your job to make sure this tenant stays on track. It is my belief that bad paying tenants are created in part by landlords who don’t enforce their rules. These tenants never learn that they have to follow the rules.
