Successful Tenant Screening

Markets are on a roller coaster with some areas and asset types doing better than others. First, a notable comment by our Federal Reserve Board.

Bernanke: No upset from Mortgage Woes: Federal Reserve Chairman Ben Bernanke said Thursday that he did not believe the growing number of mortgage defaults would seriously harm the economy. “We believe the effect of the troubles in the sub prime sector on the broader housing market will be limited and we do not expect significant spillovers from the sub prime market to the rest of the economy or to the financial system,” Bernanke said. NOTE: The reason this is so noteworthy is that housing is such a major part of the economy, that if mortgages were to really get into trouble it threatens the banking system. Try getting a loan for anything if the banks pull back due to large quantities of debt. Good to hear that its not that bad. Of course, the truth is more likely, the trend has yet to play itself out, but we all hope its not too bad and we arnt forced into a recession.
To give you an idea of how hard it is to generalize heres two more:

New Home Sales Soared 16% As Prices Declined in April
By Jeff Bater
New-home sales soared in April, an unexpected surge marking the biggest climb in 14 years, according to a report that showed declining inventories and signaled hope for the long-suffering housing sector.Separately, demand for expensive goods rose mildly in April, according to a government report Thursday that also showed capital spending by businesses grew again.
Sales of single-family homes increased for the first time in four months, rising by 16% to a seasonally adjusted annual rate of 981,000, the Commerce Department said Thursday. March new-home sales decreased 1.4% to an annual rate to 844,000, a figure revised down from an earlier estimated 858,000. Sales fell 3.8% in February and 13% in January. Year-to-year, new-home sales were 11% lower than the level in April 2006. NOTE: Sellers Market?

Existing-Home Sales Fell in April As Sub prime Lending Drops Off
By Jeff Bater
Existing-home sales retreated in April, dropping to the lowest pace in nearly four years in another negative sign for the slumping housing sector.
Home resales fell to a 5.99 million annual rate, a 2.6% decrease from March's revised 6.15 million annual pace, the National Association of Realtors said Friday. March's rate was originally estimated at 6.12 million.
The median price for a home previously owned was $220,900 in April, down 0.8% from $222,600 in April 2006. The median price in March this year was $217,400.
NAR senior economist Lawrence Yun said he has anticipated slower demand because many subprime-loan products have dried up. NOTE: Buyers Market?

Many of us that have bought now realize we are landlords and many of us bought knowing we would be landlords. Its not so very bad to own and manage. But you must realize that the quality of our new career depends on who we have as tenants. One bad tenant can really ruin an experience. So, its most important to screen out the bad ones before you sign on for what could be a multi-year relationship.

Secrets to Successful Tenant Screening

One of the most important decisions you can make is who you allow into your life as a tenant. This can be a very long term relationship and in many parts of the country, frankly, the tenant has the upper hand.

We know of one tenant that has been in the samew unit for almost 25 years and has been to the local rent board dozens of times and small claims court almost as many times. He has made a business out of knowing the law and applying it successfully. The landlord is now so afraid of him that he complyies wilh almost all of his wishes. The file must weigh 10 pounds.

Do not rush into these decisions, it is much better to wait for the right person than to be pushed to a decision because you have to cover expenses until its rented.

Most of our decisions are based on how we feel. its very important to have a basic set of rules you always apply equally. This will keep you out of trouble.

Always check the application

1. Time/Date Stamp: It may be helpful to screen your applicants on a first-come, first-served basis, then when you reach qualified applicants who meet your screening criteria you may offer the unit to the first applicant that qualifies. It's a good idea to date and time stamp the applications; then you know the exact order in which you received them.
1. Attach all written commentary to the application.
2. Keep the commentary objective and rules based. Create your owdn scoring system or use the system provided by many professional credit reporting agencies.
3. Never write on the application itself. A Fair Housing law suit may look at notes or underlines and highlights as code that you use to somehow discriminate.
4. No personal commentary at all (keep that in your head).
5. Be sure to have a proper signiture on the application that allows you to llook into fcredit and call prior landlords. Never look into an applicants personals without a completed and signed application. You must have permission to screen.

Fair Housing

What is it?
Membership in one of seven protected classes: race, color, religion, sex, national origin, disability, and familial status are the protected classes that Fair Housing issues protect.

Federal law prohibits housing discrimination based on race, color, national origin, religion, sex, familial status and physical/mental disability.States have added a host of other law. Be syre to know the law in your area. There are professionals who study fair housing and state law and look to catch you in a mistake and sue. Its a living for some.

Some Basics:

1. Avoid using words or phrases that show a preference or discourage anyone because of his or her protected class.
2.Always describe the property itself and not the targeted audience
3. Be careful with your language.
4. Do not make assumptions about the need of a group of people. It is best to objectively describe the property and allow the prospective applicant to determine their needs
5. In a sentence its about differential treatment

Its Your Property


Chris said...

Running a tenant background check would indeed be a useful tool.

Aiza said...

Excellent post. Selecting the wrong tenants can definitely ruin your investment! Aside from ensuring a potential property’s numbers are correct, this is probably the most important step.

Tenant screening