The newsLINK Group - Making Better Decisions About Tenants

Editorial Library Category: Multi-Family & Property Management Topics: Tenants Title: Making Better Decisions About Tenants Author: newsLINK Staff Synopsis: This is a good time to be in the rental business. Rental prices have been going up and the credit ratings of residents have been improving. That translates into a strong rental market. Editorial: Making Better Decisions About Tenants 4064 South Highland Drive, Millcreek, Utah 84124 │ │ (v) 801.676.9722 │ (tf) 855.747.4003 │ (f) 801.742.5803 Editorial Library | © The newsLINK Group LLC 1 This is a good time to be in the rental business. Rental prices have been going up and the credit ratings of residents have been improving. That translates into a strong rental market. But that doesn’t mean a property manager doesn’t have to be careful when deciding whether to accept someone as a tenant. Evicting tenants is unpleasant. It is also expensive. Court costs and lost revenue and operating costs can average $3,500 per unit. Unfortunately, evictions are also an unpleasantly frequent fact of life for most property managers. The typical eviction rates annually in the U.S. are three percent of the residents. The percentage varies by property type and by state. For example, high-end properties generally have a lower percentage of evictions than low-end properties, and state law has an impact as well. It is easier to evict someone in, say, Texas than it is to evict someone in California; Washington, D.C.; or New York. How can a property management evaluate potential residents to determine whether someone is likely to be a problem? The best answer is to screen them. When you are screening potential tenants, some methods of screening are legal and some are not. Federal housing laws prevent you from screening out anyone on the basis of age (except for some senior-citizen communities), family status, gender, national origin, physical or mental disability, race, or religion. In some places, it is also illegal to screen out someone for marital status, gender identity, sexual orientation, or a source of legal income. What’s left? Plenty — but it’s necessary to screen everyone the same way on a consistent basis. For example: Total income. If a potential tenant doesn’t make enough money, that’s a reason not to rent. References. If someone disappears abruptly, it is essential to have some way of contacting the people who are closest to that person. Bad behavior. This is shorthand for a criminal record. That doesn’t mean you should refuse to rent to someone who has a record. It’s possible for people to make a mistake and then straighten out their lives. But if you combine a criminal record with a bad reference from a previous landlord, and the person also comes across during an interview as being nervous and untrustworthy, then pay attention to that. Destructive habits. Smoking, excessive drinking, and drug use (such as someone who cooks up meth on a regular basis) can affect the value of a property. Screening out people like that is a smart decision. What about people who have a bad credit record and a history of being evicted? That’s another thing you should pay attention to. Collection records and prior evictions, when considered together, can provide useful information. Eviction records might take weeks or even months to be processed by the court system, which means they are not necessarily available as a timely source of information. Collections records, on the other hand, are likely to be handled more promptly. When someone stops paying rent, most property managers will pass that information on to a collection agency. The collection agency will often then pass along the information to one or more of the three major credit bureaus: Equifax, Experian, and TransUnion. The entire process takes place faster than is the case for eviction records. What is the difference between the three credit bureaus? Equifax separates open accounts from closed accounts. This makes it easier to determine an individual’s total debt by considering all of the open accounts. For the closed accounts, Equifax does list details about closed accounts, including an explanation about why each account was closed. Having that information makes it easier for a lender to understand how potential tenants handled previous loans and debt obligations. Experian lists on-time rental payments if the property management company reports it. Experian also lists details about each transferred or closed account,