SS255: How to Avoid Bad Tenants

SS255: How to Avoid Bad Tenants

Avoiding problematic tenants is key to successful property management. In this episode, Charles discusses effective strategies for identifying and addressing problem tenants.

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Talking Points:

  • When I have spoken to ex-landlords in the past who left the business, there are really 2 recurring reasons I hear: 1. It was much more time-consuming than they thought; they realized real estate investing was not a passive activity, and 2. Bad tenant experiences. 
  • I purchased my first multifamily property in 2006, and over the years, I have worked to try and make my real estate business run smoother, which I realized later on was really based around renting to better tenants. If you can avoid bad tenants, you are really avoiding a lot of problems.
  • Here are some rules and guidelines that I have learned and implemented in my business over the years.
    • 1. Improve Tenant Screening. Having effective tenant screening is the best way to avoid problematic tenants and potential future issues. This is achieved by conducting thorough background checks, which include criminal and eviction history. Credit checks, employment verification, and income verification provide solid proof of the tenant’s ability to pay rent. Previous landlord references may be useful if you can verify their validity and determine if the information provided is accurate. If the references are from a previous landlord, it is essential to confirm their accuracy, which can be challenging. Maintain consistent application screening criteria and requirements for all applicants. 
      • Additionally, if you own or manage a number of rental units, consider building a waitlist and maintaining continuous marketing on your properties while encouraging potential tenants to apply and get pre-approved before you have any units available. Furthermore, you can offer incentives for early renewals or referrals to reduce turnover and minimize unit downtime.
      • If you want to learn more about tenant screening with some tenant screening questions we use, check out episode SS189.
    • 2. Utilize Solid Leases. Every landlord should use a protective, well-crafted lease that has been reviewed by an attorney. Your lease will be something that you regularly update as you gain new tenant experiences, but ensure it includes a few key points before using it.
      • Clear definitions of rental amount, due dates, and late fees.
      • Detailed rules regarding property use, such as parking, smoking, pet policies, noise, etc.
      • Responsibilities for the tenant and the landlord, including maintenance, paying rent on time, respecting the property and fellow tenants, along with the procedures for lease violations and evictions.
    • 3. Setting Clear, Upfront Expectations. This is something I never did when I first started investing, but once I implemented it, I saw a reduction in tenant conflicts, as providing proactive communication helps avoid misunderstandings and disputes by following a couple of steps:
      • Unit walk-through thoughts upon move-in. Performing move-in inspections with the tenants and documenting the unit’s condition alongside them goes a long way in avoiding issues related to the apartment’s condition.
      • A welcome packet or a coversheet of the important points of the lease, rules, emergency contacts, procedures, and important lease terms; helpful since most people do not read the lease.
      • Encourage open communication. If there is an issue or problem, please have them reach out. You don’t want to find out a week after rent is due that they lost their job, that the heat is not working correctly, or that a toilet has been running for 2 weeks. This is the first step in good customer service and tenant retention.
    • 4. Notice Issues Early and Enforce Policies Immediately. 
      • Noticing issues, even minor ones, helps them not turn into major issues. Schedule inspections under the guise of HVAC filter changes, dryer vent cleanings, or hot water heater maintenance. Always provide proper notice and schedule it on a regular, periodic basis, such as quarterly or every other month. When inside the unit, look for potential issues or lease violations, such as unauthorized pets and occupants, damage, or items requiring maintenance.
      • Strictly follow your lease to maintain control and respect between the tenant and the landlord. If you do not enforce your lease, it becomes worthless in the eyes of the tenant. When an issue arises, address it with the tenants immediately. Written communication is most effective, especially when issuing late rent and lease violation warnings. Written communication also removes emotional responses, making the communication much more formal than just a text or a call. Tenants will take the communication more seriously when it is written.
  • As a recap, improve your tenant screening, use a good lease that has been reviewed by an attorney, set clear expectations with tenants, spot issues, and enforce policies immediately.

Transcript:

Charles:
As a multifamily investor since 2006, I’ve heard dozens of landlord horror stories, most of which centered on problematic tenants, bad tenants, can destroy your profit, your property, and your peace of mind. And that is what we’re gonna be talking about today. Welcome to Strategy Saturday. I’m Charles Carillo, and today we’re discussing how to avoid bad tenant and I’ll share the rules and systems I’ve used over the years to make my rental business run smoothly, stay profitable, and stress free. So let’s get started. When I’ve spoken to ex landlords in the past who have left the business, there are really two recurring reasons I hear. Number one is it was much more time consuming than they thought. They realized that active real estate investing was not a passive activity. And number two, bad tenant experiences. And when I purchased my first rental property two decades back over the years, I worked to try and make my real estate business run smoother, which I realized later on was really based around renting the better tenants.

Charles:
If you can avoid bad tenants, you are really avoiding a lot of problems. And here are some rules and guidelines that I have learned and implemented in my business over the years. Number one is improve tenant screening. So having effective tenant screening is the best way to avoid problematic tenant and potential future issues. This is achieved by conducting thorough background checks, which include criminal and eviction history, credit checks, employment verification and income verification provides solid proof of attendance, ability to pay rent. Previous landlord references may be useful if you can verify their validity and determine if the information provided is actually accurate. If the references are from a previous landlord, it is essential to confirm their accuracy, which can be challenging, and maintain consistent application screening criteria and requirements for all applicants. And additionally, if you own or manage a number of rental units, consider building a wait list and maintaining continuous marketing on your properties while encouraging potential tenants to apply and get pre-approved before you have any units available.

Charles:
And furthermore, you can offer incentives for early renewals or referrals to reduce turnover and minimize unit downtime. If you wanna learn more about tenant screening with some tenant screening questions we use, you can check out episode SS 180 9. That’s SS 180 9. Number two is utilize solid leases. So every landlord should be using a proactive, well-crafted lease that has been reviewed by an attorney. And your lease will be something that you regularly update as you gain new tenant experiences, but ensure and includes a few key points before using it. So clear definitions of the rental amount, the due dates and late fees. Detailed rules regarding property use such as parking, smoking, pet policies, noise, et cetera. And responsibilities for the tenant and the landlord, including maintenance, paying rent on time, respecting the property and fellow tenants along with the procedures for lease violations and evictions. Number three is setting clear upfront expectations.

Charles:
And this is something I never did when I started investing, but once I implemented it, I saw a reduction in tenant conflicts as providing proactive communication that helps avoid misunderstandings and disputes by following a couple of steps. Number one is, you know, walk the units upon, move-in performing, move-in inspections with the tenants and documenting the units condition alongside them goes a long way to avoiding issues related to the apartment’s condition. Before I did this, you’d have someone that’d call you half hour after they moved in, a day after it, a move a week or something afterwards, and they go and they give you a list of stuff that’s broken or what’s wrong with the apartment or what they think is is an issue. And then you have to work this out. If you do the unit walkthrough right as keys are given and they sign off on it, literally now everybody’s on the same page.

Charles:
And if there’s an issue afterwards, then you have to have that conversation with your tenant. This will avoid most of it because it’s upfront. You both are agreeing that the unit is in make ready move-in condition. A welcome packet or a cover sheet, the important points of a lease, rules, emergency contacts, procedures, important lease terms. It’s helpful since most people do not read the lease. Encourage open communication. If there is an issue or problem, please have them reach out. You don’t want to find out a week after rented due that they lost your job, that the heat is not working correctly or that a toilet has been running for two weeks. This is the first step in good customer service and tenant retention. Now, sometimes you’ll hear about it only when the rent’s due ’cause they’re trying to push off paying rent. But if you can keep the open communication when there’s an issue that comes up, that’s when you can go and rectify it immediately.

Charles:
Number four is notice anything’s issues early and enforce those policies immediately. So when you’re noticing issues, even minor ones helps them not turn into major issues. So if you schedule inspections under the guise of HVAC filter changes, dryer vent cleanings or hot water heater maintenance, always provide proper notice and schedule it on a regular periodic basis, such as quarterly or every other month. But when inside the unit, look for potential issues or lease violations such as unauthorized pets and occupants damage or items requiring maintenance. And strictly follow your lease to maintain control and respect between the tenant and the landlord. If you do not enforce your lease, it becomes worthless in the eyes of the tenant. And when an issue arises and you address it with the tenants immediately, that is when it really solidifies the lease. Now written communication is the most effective, especially when issuing late rent and lease violation warnings.

Charles:
Written communication also removes any type of emotional responses, making the communication much more formal than just a text or a call off the whim. And tenant will take the communication more seriously when it is written. Now, as a recap, improve your 10 screening. Use a good lease that has been reviewed by an attorney, set clear expectations with tenants spot issues, and enforce policies immediately. So I hope you enjoyed. Please remember to rate, review, subscribe, just make comments on potential show topics at globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentoring programs at syndicationsuperstars.com. That is syndicationsuperstars.com. Look forward to two more episodes next week. See you then.

 

Links Mentioned In The Episode:

  • SS189: Tenant Screening Questions

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