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Tenant Deposits, How to Reduce Risk

hand-holding-a-grenade-1411373825Xtf-PDTenant deposits are one of your keys to risk mitigation.

If you are like most landlords, you think that the largest risk to being a landlord is getting your rent.  You know that deposits will protect you, and if you are calculating your numbers correctly, you will make a big profit.

Make no mistake, if you think all you need is a deposit to protect you, you will be headed for disaster.

The number one way to protect your income stream from tenant defaults is to get great tenants to begin with. Good tenants will bring in a solid income of at least 3.5x the rent in income. Preferably much more. With the average family income over $50K annually, just getting an average income will probably be well over 3.5x the rent in income.

Income will tell you the tenant’s ability to pay rent.

The second piece of the puzzle is credit score. With a C-grade credit score north of 620, and the average tenant’s credit score being north of 650, it is easy to weed out lower scoring tenants to reduce risk.

Why take the bottom of the barrel tenants in terms of credit score, and increase your risk? These people may be great people, and some will definitely pay rent, but it is a higher risk potential. Mitigate your risk by selecting a tenant who has proven their ability to stand behind their financial commitments.

Read more here

Do you have any interesting tenant deposit stories? What is your policy on deposits, or what have you experienced as a tenant?

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Declining Tenants that Are Persistent

Decline tenantDeclining tenants is a necessary part of being a landlord.

A tenant recently inquired for one of my rentals.  I always do on-line advertising so most of the inquiries are via email.  If they call directly, I get their email address texted to me, so I can email them my standard response.  As I have posted before, I typically send out a canned response so that prospects can understand what I am looking for in a tenant, and they can also get a better understanding of the layout of the apartment(s).

A link to a video tour is also included, which I have received a lot of unsolicited compliments on.  I just walk around the apartment narrating the video.  Nothing fancy, no high tech camera.  But it works.

Here is how one applicant inquiry went, from a tenant I declined.

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Warning Signs for Incoming Tenants

red flagHere are some warning signs for incoming tenants offered as a guest post in regards to some tenant quirks that may make for a bad tenant.  It is a great list, most of which I agree with, although some are not as much of a red flag.  Some are a bit non-conventional, and others are spot on.  (I might fail a few myself, especially the ones about how the tenant  is dressed…)

Warning Signs

Not all tenants that exhibit these behaviors are going to be terrible, high-risk tenants.  Each one, in and of itself, is not necessarily bad.  If you have a list, and start checking each item as you interview the tenant, the more red check marks you have the worst the tenant is likely to be.

Of course, income and credit score are the best indicators.  This is also a great list for tenants to read.  It might help you appear more ‘normal’ to a landlord (whatever normal is…).  Things like intimidating the landlord, cursing excessively, and objecting to a background check are a pretty bad indicator.

It is a great read, and you can see how many you might fail yourself.

1.They try and get you to lower the rent before they even see the apartment.

This is a sure sign that this tenant can’t really afford the property. Asking before the showing means that the value of the property means little to them, they only care about the cost.

 Read More Here

What do you think of the ideas?  Do you have other things that people do that would make you hesitate to rent to?  

Do you have a list of landlord red flags?  If so, I could post that too!

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Landlords in Homeowners Associations

police-man-306848_1280-PDLandlords in Homeowners Associations are a joy to some, and a pariah to others.  I own multiple properties in a Homeowners Association (HOA).  People love HOAs, or hate them.  Often, it is real estate investors that hate the HOAs.

If an investor buys property in a homeowner association, they have effectively signed a contract with the HOA.  They have agreed to abide buy the Declarations, bylaws, rules and regulations.  If they do not like the contract, they can attempt to change it.  Once thing they cannot do, is violate it.

As president of my HOA, I have had some challenges with investors.  For some reason, after they have purchased property in our HOA, they think they know more than the HOA Board does.  They very well might, but there are still rules to follow.

I am always intrigued by these investors who buy a property in a HOA. They buy a property because it was priced right, looked to be in a great area, and had the potential for profit. Unfortunately, some of the investors I have come across did not understand HOAs, did not read the rules, or did not think the HOA would enforce the rules. They were interested in their own profit, at the expense of the other investors.

I am sure that they have a few HOA horror stories of their own, after they violated our rules.

Read More Here

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Financial Independence With Rental Real Estate

beach-641548_1280-PDFinancial Independence with Rental Real Estate.  I often get asked by my co-workers at my ‘regular’ job, the ones who know I am a landlord, why I keep going in. Why not just retire now?  Why do I put up with the mega-corp meetings, frustrations and red tape just to bring in a few dollars.

I put in a lot of hours, and a lot of investment capital to get this far, what does it takes to be financially independent?

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Apartment Turnover and Other Maintenance

Apartment TurnMy final apartment turnover for March is complete.  I am all set until the end of April now.  I had the new tenant sign a lease and pay the rent for the remaining March rent, and all of April, on 3/24.  I prorated the rent for March, and she also paid all of April.

These tenants have a solid credit score, and solid income, so they should be a great tenants.  It is only one person for now, and another that moves in in August.  Both have been screened and accepted.

That is the way to do it, declare and screen everyone who will be moving into the apartment right up front.  No one wants to be told their significant other can’t move in a month down the road.

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