I Admit, I Made a Mistake! – Always Run the Report!
I admit that I used to make a serious mistake that would put a lot of what I had at risk. I used to not do credit checks. Now, after doing them for several years, I will NEVER accept a tenant without first seeing their credit report. The potential resident’s credit report has so much information about them that you are not seeing when you don’t run a credit report. It’s not just a question of whether they have good credit or not.
You can see WHO they are paying and not paying and what is causing the credit to be bad. As you probably know, from a landlord’s perspective, all creditors are not as critical as others. You can see past addresses that you may not see otherwise on the application. You can compare recent payment history, judgments, older payment history, and if the credit problems are recent ones on the credit report.
On a credit report, you can see if the social security number even matches the applicant. You can get a glimpse of the type of lifestyle payment choices that affect the applicant’s debt and how much debt they may have. This may be hidden from you otherwise–and so much more.
There are many times that I have been extremely thankful and relieved that I ran a credit check on an applicant. I probably would have accepted the applicant as a resident had I just gone with other free information that was available to me.
All I can say folks, is I hope the best for those of you who continue to play Russian roulette with your rentals. But honestly, for less than ten bucks (the cost of a credit report), it really does not make sense that you are taking the extra risk of not seeing a credit report before accepting any applicant.
You all know as well as I do that it only takes one wrong selection of a resident and that can cost you thousands if not tens of thousands of dollars. And yet, some of you don’t think it’s worth the ten dollars to run a credit report. Come on. When I used to not run a credit report, it was because I was naive and simply didn’t know better or it was because credit reports were not as easily accessible as they are now. The excuse that says that because your competition is not doing them means you don’t have to is NO excuse. Even if you don’t want to charge the applicant, still run the credit report.
Because of competition, at times I used to often promote a “Special” discounted charge for rental prospects to do an application – Only $10 Application Fee This Week! It’s not that qualified applicants care that you run a credit report. Some qualified rental applicants simply (in some areas) may not want to pay a large application fee. And the low price would make my ad stand out from the competition, which was really the big advantage of running the “special” every so often. It would generate a LOT of inquiries. So, there are several reasons why a landlord may not want to charge large application fee, but I’ll say it again, RUN the report. YOU are the one with so much potential to lose and all because you’re too cheap to run a ten-dollar credit report. Friends, this is another classic example of landlords being too frugal for their own good. Don’t make the serious mistake I used to make. Always run the report!
Favorite Landlording Tool
The following question was asked on our Landlord Q&A Forum:
“What is your favorite landlording tool?”
I love the responses shared by a couple of real estate investors. One of those responses is below.
“The smart phone is my best, most-often used tool. I get it: on the MrLandlord site we have a lot of DIY (Do-It-Yourself) landlords. That’s fine if that’s your wheel house. Then enjoy your augers and laser-guided, poop breaker-uppers. But that never was and is no longer my goal!
I want the freedom of being a real estate investor, not a jack-of-all-trades handyman. Last month, a tenant put in a maintenance request for a clogged toilet. I texted my plumber. He’s there for two hours clearing tampons out of the line and hand-scooping poop out of the toilet, because the tenant kept using it even while it was plugged–for three days! The bill was $300. I emailed the bill to the tenant and she paid.
The time this took out of my life was about five minutes, and that includes paying the plumber’s invoice and filing the digital PDF invoice in my PC folder for Taxes – 2021. My phone is the most efficient tool I’ve ever had, truly!
CEOs don’t scoop poop. An experienced landlord name Brad taught me this, though not in those specific words. Thank you, Brad! I enjoy life so much more now that I’ve ‘taken the tools out of the trunk.’ ”
Do You Raise the Rents on Good Residents?
The typical response from most landlords is to only raise rent at turnover and leave good residents alone (even if rents are currently below other competitors’ rates). The main fear is that good residents may move and a small increase is not worth the risk of losing a good resident. The average landlord does not increase the rent each year. They also do not improve the property each year either. I would challenge landlords to at least make small increases every year but also improve the property each year. Your good residents will stay even longer, and your cash flow and property value will continue to increase every year. People who really like their property will not leave over a small increase, especially if your rents remain very competitive.
I’d like to share a comment from a couple of successful landlords that was posted on the popular MrLandlord.com Q&A forum recently that is an example of what I am suggesting:
One landlord shared that in the last 20 years, he has only had two or three tenants out of hundreds who moved due to a small rent increase. Where large increases are merited, they should be implemented. At a minimum each year, the landlord tries to implement small increases. It should be noted that small rent increases have not even been the norm in the last year. Across the country, the average rent increase by landlords has been between five and 10 percent. A $50 month increase is $600/year. If you have five tenants that is $3,000/year lost if you don’t raise rents. Most landlords have not realized that their rental rates have fallen behind current market rents. If you don’t raise rents, I urge you to test the waters as you might be rewarded significantly.
Another landlord expressed that she wished she would have raised the rent at least $10 or $20 a month each year as she has some tenants paying the same rent now for 6-7 years and the inside of the apartments would have to be totally re-done due to wear and tear.
One other rental owner agreed: “Landlords need to raise rents a little each year. If you don’t and then realize years later that the rent you are collecting is not covering the expenses, then you feel the need to have a large rent increase. A small increase is easier for tenants to digest rather than a large increase.”
Further Note from Jeffrey: Some of the landlords are concerned that it doesn’t make sense to do upgrades which simply covered the rent increase or even came up short of the annual increase. The bigger picture is that by doing upgrades, you increase the odds that residents will stay longer. Because if you lose a resident, on average the vacancy will cost you between $1,800 to $2,800. An upgrade that may cost you even $100 to $200 may still be well worth implementing if it helps you keep a resident and not have a vacancy that costs you $2,000 or more.
Charge Residents for Repainting
Do you ever have residents that leave your rental with holes in the walls? This is a common occurrence happening to many landlords. How do you handle the charges for repairing the holes? How much do you charge for repainting the walls? That was one of the hot topics of discussion on our Q&A Forum. Here are some of the key points in the discussion:
- Make sure you address holes in walls and painting in your lease, including normal wear and tear versus damages.
- Inform residents up front of possible charges that they may incur for different types of damages.
- Prohibit painting by residents without permission of the owner or management.
What You Do “Not” Say to Applicants
A landlord with what he considers a “C” property in a “C” neighborhood recently had a prospective resident (who is currently paying Class-A rents), inquire about his properties. The landlord, who was trying to be helpful, e-mailed her photos of his house and tried to explain to her that the neighborhood of his probably is a little different from the neighborhood she lived in now. The landlord even gave her the racial mix of the neighborhood.
Several landlords expressed caution and gave reasons why this prospective resident with an 800+ credit score would even consider moving to a class C property. However, the landlord’s statement regarding providing the racial mix of the neighborhood is what sparked the biggest concern on our Q&A Forum. One other landlord warned:
“You (may have) just committed a fair housing violation of steering. You can’t give racial information, (even when stating facts), or tell someone the neighborhood’s not right for them because they are too good for the neighborhood, and you can’t imply that someone may not fit in because there are people of other colors living there.”
The tips in this column are shared by regular contributors to the popular MrLandlord.com Q&A forum, by real estate authors and by Jeffrey Taylor, [email protected]. To receive a free sample of Mr. Landlord newsletter, call 1-800-950-2250 or visit their informative Q&A Forum at LandlordingAdvice.com, where you can ask landlording questions and seek advice of other landlords 24 hours a day.