Multiple Tenants

As rents increase, more rental properties are being shared by more than one tenant, so here are three questions to answer before you sign with multiple tenants on the lease.

It might seem like an antiquated phrase since most of us no longer buy apples in bulk, but the concerns about one bad apple spoiling the whole bunch are real.

As it applies to our industry, this is becoming a critical issue.  Here’s why: With the rapid increase in rents over the past few years, more and more of our properties are being shared by more than one tenant in an effort to be able to just afford the rent.

In most cases as we backtrack, having more than one tenant would equate to having more than one applicant for the lease.  And when you have more than one tenant potentially on the lease, there are three major questions you need to answer before signing that lease.

Question 1: Will I Get my Rent?

Logically, it is easy to assume that having more tenants in the property would increase the odds that you are going to get paid in full and on-time.

- Advertisers -

More people and more income should add up in the landlord’s favor, but that isn’t always true.  Proper screening, including criminal, civil and credit checks, is critical if you want to protect your investment.  Let’s consider that you have three individuals who are friends apply to rent your property.  They each complete an application and upon review, you find that one of them has a history of evictions, has credit below the standard you normally require for this property, and is currently unemployed.  What do you do?

You have a few options and things to consider.  How is the credit and eviction history of the other applicants?  How long ago was the eviction for the affected applicant?  Was it affected by COVID or other outside circumstances?  What kind of history does the applicant have with the other applicants who have good credit?  In essence, you have to rely on your criteria and your calculated trust in the other applicants on the lease to pull through with payments, even when or if the poorly qualified tenant can’t fulfill his portion of the lease payment.  This, by far, is the easiest of the three questions to answer because the additional tenants can always help carry the payments if needed.  The next question is much more difficult as it deals with the complexities of personality and behavior.

Question 2: Will My Property Be Taken Care Of?

This question is where a careful review and analysis of each applicant’s criminal history is critical in ensuring the value of your property.

It’s been said that we become the sum of the five people we spend the most time with.  If one or more of your applicants has a criminal history, the likelihood of them having friends and associates with similar history grows exponentially.

Let’s say you have an applicant with a history of drug-related arrests. While it’s not a guarantee, the odds of that applicant having friends with similar histories are high.  Any seasoned landlord will testify that the criminal crowd has a history of destroying property, either through their own negligence or the negligence of the people they invite over.  So while you may have two tenants who are law-abiding and take great care of your property, you have to be on the lookout for the one that can bring destruction.  Again, having and applying a strict criteria on each applicant can help save you and your property.

Question 3: Is My (and the Neighbors’) Safety Compromised?

This may seem like an outrageous question, but my experience says that it’s much less far-fetched than you might believe.

The last thing a landlord wants is to compromise their safety and the safety of the surrounding neighbors.  We’ve all heard the news stories where the neighbor can’t believe that their neighbor was involved in … (fill in the blank) and that he seemed like such a “nice guy.”  It’s only when the reporter unveils the laundry list of criminal offenses and past disturbances that the neighbors and the general public see what the offender was really like.  Having a criteria and using the background check results to measure against it for each and every applicant is paramount in keeping all involved in a safer situation.  If I have to go to the home to collect unpaid rent, I’d rather go in knowing my safety wasn’t in question when I knock on the door

Let me reiterate, you need to look at each applicant individually.  Then take that individual analysis, add it all together, and make your rental decision.

 

The RentalHousingJournal.com is an interactive community of multifamily investors, independent rental home owners, residential property management professionals and other rental housing and real estate professionals. It is the most comprehensive source for news and information for the rental housing industry. Their website features exclusive articles and blogs on real estate investing, apartment market trends, property management best practices, landlord tenant laws, apartment marketing, maintenance and more.  Reprinted with permission.