The story you are about to hear is true. Only the names have been changed to protect the innocent — or maybe not so innocent — but we’ll keep them anonymous!
Last year, we met Bill. He came to us and said, “I want you to manage my property, but I’ve already found the tenants. We’re not under lease yet, but I want these tenants!”
So we said, “Great! Just send us their application and the results of their background check.”
“Oh, we don’t have that. The tenant didn’t want me to see their financials, so we skipped it.”
"Big mistake!" we told him. “That’s a red flag. We don’t recommend signing the lease with them.”
Long story short, Billy chose to sign the lease so we didn’t manage the property.
But three months later, Bill came back.
"So I found another property manager to write up the lease. I signed with the tenants, but they’ve only paid one month’s rent and are two months behind. Now, the power’s been disconnected from the house too. Can you evict them and then manage my property?”
This was a tough situation, so we told him, “If you want us to manage the house, we need to get the house in presentable condition and find a qualified tenant.” He agreed.
When we got the tenants out, we found tons of damage to the property — $5,000 in paint and carpet damage alone. Plus, Bill lost rent for the two months his tenants didn’t pay and the time it took to repair the house.
We were able to get the house up to par and find a great tenant for him — a tenant that’s paying on time and keeps renewing the lease — but how can you avoid Bill's situation to begin with?
The Trouble With Bad Tenants
The first thing that goes wrong with bad tenants is rent. We typically visit a property every six months unless something drastic catches our attention. But rent is a monthly check. If it comes late, or doesn’t come at all, it’s typically not for a good reason.
But even though late rent is a red flag, you don’t want to wait until you’re losing money to root out problem tenants. Identify them before they sign the lease.
See, once they sign the lease, you’ve entered into contract for the property. We look at it like a marriage — you’re committed now. Plus, you have to communicate, which can be extremely stressful with a bad tenant. Any repairs or problems with the house, issues with neighbors or the city, or rent issues come through you. They can be exhausting to deal with.
So how can you tell before you sign that someone will cause problems? Here are 7 warning signs of problematic tenants.
7 Signs of a Bad Tenant
1. Overpaying in Rent
See, Bill chose the first tenant because the tenant agreed to a rental rate 20% over the market. When we wanted to post it at market rate, Bill opted for the less-screened, higher-paying tenant. If tenants are willing to pay more than market value, it’s because they’re hoping that you overlook something for them. And it’s common.
Landlords are tempted to base their rental rates on how much they want to make. They total their mortgage, interest, taxes, and desired profit to come up with the amount. But it doesn’t work that way. Your expenses are irrelevant to market activity. We don’t set the rent — the market does. Good tenants know the market value and won’t overpay. So price your property accordingly.
2. Lack of Solid Rental History
Most good tenants can show where they’ve been living for the past few years. So, if you can’t verify at least two years of solid rental history, you need to find out more about their situation.
3. Overly Pushy
Sometimes people rush into a rental. Beware! If someone calls and says, “I need a place today!” it’s likely they’re trying to rush the process as a way to bypass your regular procedures. Maybe you won’t have time to talk to their previous landlord. Maybe they’ve recently been evicted and want to find a new place before the eviction hits their credit report.
They’re not always trying to hide something, but take precautions. Don’t let a quick move-in confuse the process, even if they have the deposit in hand.
4. Poor Credit Rating
Are there issues with the applicant's financial health? If they have a poor credit rating, they could have a history of late payments — and you don’t want monthly rent checks to be a gamble.
If an applicant has late payments on their previous rentals, at LEAP, we don't move forward with the application until we have proof of settlements. If they owe another landlord money, we’d be crazy to think they won’t do the same thing to us.
5. Disappearing Pets
Some tenants ask about pet policies. If we say that we don’t accept that type of pet, but they still want to move forward, there’s usually something else going on. Be skeptical if they quickly figure out how to get their mom or brother to take care of their dog just so they can move in.
6. Single Person or a Couple in a Big House
An individual applying for a 3,000-square-foot property raises some red flags. A single-story house with three bedrooms is fine, but a house with four or five bedrooms isn’t what most people would pick unless they plan on moving other people in later.
7. Any Objections to the Application Process
Anytime someone objects to your screening process, there could be an issue. They may say, “I don’t want to provide that information because it’s personal.” For people who are self-employed, we require tax returns. “Well, I haven’t filed my taxes,” they say. That’s fine — they can send you a P & L. A good applicant will be able to give you the information you need to follow your process.
The Real Cost of a Problem Tenant
Finding good tenants may cost more money and time up front, but you’re making an investment in your home. A quality screening process helps you find people who will pay their rent and take care of the property. And if you skip the cost up front, you run the risk of getting tenants from hell that cost more money, more time, and more stress.
With Bill’s situation, he was only trapped in the bad relationship for three months. Most bad tenants take much longer to turn over. But that short time cost Bill about $10,000 in losses and damages. Did he get higher rent? Yep — for one month he collected an extra $600. Assuming Bill cash flows about $300 per month, it’ll take him over three years to recoup this little mistake — and the hours he spent dealing with the tenant during those three months are irrecoverable.
Don’t do what Bill did. Get the right tenant to start with.
And if you want someone to do it for you, give us a call at LEAP.