The Three Phases Of Leasing
Did you know that every person in life (tenant or otherwise) has an excuse for why they are in the situation they are in? For most people, they claim the reason for their situation is and or was outside of their control. We hear and read eviction stories about lost jobs, landlords who do not make any repairs, hospitalizations, etc. While most of these stories probably have a bit of truth to them, they are all excuses and stem from three fundamental weaknesses in our human nature:
1. Poor decision making
2. Poor planning
3. Victim mentality and/or our excuse culture
How does this relate to leasing you might ask? We are looking for tenants who buck the trend of human nature; not making excuses, planning for unforeseen events and understanding the causes and effects of their financial actions.
How do we do this? We follow a rigorous three step process for leasing. If you follow this process, you will find great tenants and you will be more successful than your peers. If you do not follow these steps, you are doomed to have unforeseen expenses due to evictions when life gets in the tenant’s way. We follow a three-step process for determining if a person will be acceptable for renting a home from us:
1. Income verification. If a person does not make enough money to afford the property, they inevitably will have to be evicted from the property. I feel it is unconscionable as a property manager to put the tenants and my owners in those positions. If a tenant makes significantly less than 3X the rental rate, I am not doing my owner or the tenant any favors in putting them in. Having sufficient income should be the number one screening criteria for leasing.
2. Credit and background checks. If a person has huge car payments with little income, has evictions on their records and they have not paid their utility bill and any other similar hits to their credit, it is again a sign of poor decision making, poor planning, and a lack of accountability to their financial commitments. We screen those people right out. When I see a low credit score and their income is way above 3X the rental rate, I generally ask if they can provide an additional security deposit. This serves two purposes; minimizing risk to the owner and seeing how financially healthy they are. If they cannot do it, it is a huge sign that they do not make good financial decisions and we screen them out.
3. Landlord references. If possible do not interview the current landlord but rather the landlord before the landlord. This individual has no reason to lie. For the current landlord, there are plenty of reasons for them to give you a glowing recommendation on their “angel” tenant. In this situation, I have found three reasons for “angel tenants”; family/friends pretending to be the landlord, true landlord that wants the tenant out so bad, and true landlords who actually have an angel tenant. If you can only interview the current landlord, ask questions that can poke holes in the tenant’s application story. Play dumb and ask who lives there, what was the address, what is the name of the owner, etc and corroborate that information from online sources. This will allow you to screen out the family/friends. If you catch the tenant in a lie, screen them right out. When listening to the actual landlord, listen for areas of negativity. People are not perfect so tenants should have some blemishes on their renting history. If everything is too perfect, it probably is.
If you spend the time to follow all three of these screening criteria up front you will have a lot less pain in the back end when the tenants are moving out.