You are reading: How to Avoid Bad Tenants
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The lifeblood of your property management business? Tenants. They keep the lights on, the rent flowing, and breathe life into your properties. But for every dream tenant, there’s a potential nightmare tenant lurking in the shadows, just waiting for the opportunity to turn your property management dreams into a horror story.
Property managers often lie awake at night worrying about the possibility of a bad tenant getting into their property. They picture destroyed units, late rent payments, noisy neighbors, and worst of all, evictions. A bad tenant can cause substantial financial harm in a short amount of time.
So, how can you avoid these bad tenants? In this article, we’ll review what makes someone a bad tenant and how you can develop strategies to keep them out of your properties.
Qualities of a Bad Tenant
An unemployed tenant is a risky proposition. Without a steady source of income, their ability to consistently pay rent is in question. Yes, they may have savings or unemployment benefits, but these are temporary safety nets. Unemployment may last for several months and savings can run out quickly. You don’t want to put yourself in a situation where you have no choice but to evict them.
While entrepreneurship is commendable, a tenant who’s just starting their own business could also pose a risk. A short history of being self-employed often means that an applicant doesn’t have a stable income or any recent employer references. New businesses require time to generate enough revenue to support monthly expenses, so be cautious about accepting a rental application from someone who just started their own business.
Haggling Over Rent
If an applicant tries to negotiate the rent price, it’s not a good sign. Odds are they can’t afford the unit and are trying to convince you that you priced it too high. Disputing the rent price can be a sign that the bad tenant can’t afford the property. If they aren’t prepared with research and facts as to why the rent should be lower, this may not create a good professional relationship with the person they are renting from.
Low Credit Score
Running credit checks on potential applicants can help you evaluate their financial situation. Think of a credit score as a financial report card that helps you determine past financial responsibility. If a potential renter has unpaid bills, late payments, or collections, these issues would be reflected in their credit score and could indicate they are potentially a bad tenant.
Cash-Only Deposits and Payments
A renter who wants to pay cash may sound like a dream tenant, but typically a tenant offers cash because they have bad credit. You may not know the person’s actual financial status for several weeks, and by then, it may be too late to avoid significant payment issues.
The same goes for applicants that offer you extra money to secure the property. They may offer to pay an increased deposit or two months’ rent upfront. This tends to happen when the applicant is able to front the cash to secure the unit but then doesn’t have enough financial stability to routinely pay their rent on time.
Renters sometimes move when they find more affordable housing or better job opportunities, but you may uncover other reasons for frequent moves. Try to determine if they were asked to leave their previous residence or if neighbors reported excessive noise. If your renter doesn’t have legitimate reasons for relocating frequently, or if they seem to have the same problem with their roommates or landlords over and over, you may not want to enter a rental agreement with them.
Unstable Job History
There are many legitimate reasons a tenant may change jobs frequently. Regardless, someone who switches jobs often may not have a stable source of income or may not be able to pay their rent between employment changes. If you are looking for stable long-term tenants, be sure they have an employment history of at least 12 months with the same job or career.
No Rental History
First-time renters are not always a concern. We all have to start renting at some point! However, be careful with a potential tenant who has rented before but has no proof of prior tenancy. If they paid rent to a friend or family member, ask for proof that their rent was paid on time, as past payment activity often indicates future payment habits. Ask for a guarantor on the lease, thoroughly research their income, and request character references from coworkers, employers, coaches, or mentors.
Your tenant must be able to pay rent each month, so be sure to review income and credit reports. If the applicant does not have enough income to support their monthly rent, or if they refuse to disclose their income, you have a valid reason to deny the application.
Past Criminal Record
When it comes to renting your space, be sure to review your tenant’s past – especially the dirty laundry – before you hand over the keys. If something goes down on your property and you never ran a background check, you could be looking at a lawsuit.
Guarding Against Bad Tenants
Thorough Tenant Screening
Now that we’ve identified potential red flags let’s talk about your first line of defense: pre-screening. This stage lets you weed out potential troublemakers based on credit score, employment history, and references. Your goal? To “rent smart.”
Reviewing a potential renter’s credit report can provide you with a clear picture of their financial situation and ability to pay rent on time. It also reveals any past issues they may have had with paying bills, such as collection accounts or late payments. Looking into an applicant’s rental history is also important, as it will help you gauge whether they have been a responsible tenant in the past.
In addition to credit and history, there are other things to consider when screening tenants. A background check can provide information about their criminal records, including any felonies or misdemeanors that may indicate their character or ability to follow the rules. You should also confirm their employment status and income, which will help you determine if they can afford the rent rate you’re requesting.
Finally, checking references from previous landlords is a great way to get an idea of how reliable and courteous they are as tenants.
You should have a set of criteria that every tenant must meet. You can even outline these criteria on your website so applicants can see if they’re qualified before they even apply! Look for stability, reliability, and financial responsibility.
Mastering the Interview
After pre-screening comes the interview, your chance to meet potential tenants face-to-face. Here, you’re not just assessing their ability to pay rent; you’re gauging whether you can enter into a long-term relationship with them.
Pay attention to the details. Are they punctual? Are they respectful? How do they react when you lay out your expectations? Trust your gut. If something doesn’t feel right, it probably isn’t.
Saying ‘No’ is an Art
As a property manager, learning to say ‘no’ is crucial. If a potential tenant doesn’t meet your criteria, be firm, yet respectful in your decision. The applicant may have questions about why they were denied, so make sure your answers are professional and appropriate.
Always ensure that your decisions comply with the Fair Housing Act. This act prohibits discrimination based on race, color, national origin, religion, sex, familial status, or disability. If you break any rules outlined in this act, you can get yourself into serious trouble.
Hiring a Property Management Company
If you’re a first-time landlord, you may want to consider hiring a property management company to handle everything. They’ll have years of experience working with tenants and will have a defined screening process that you can feel safe with. If an issue does arise with a tenant, they will be the ones to handle it and represent your interests.
Fostering a Positive Landlord-Tenant Relationship
Even after the lease is signed, your work isn’t over. Regular communication, prompt responses to maintenance requests, and respecting your tenant’s privacy can foster a relationship of mutual respect. Happy tenants are more likely to respect your property, pay their rent on time, and create a positive living environment.
To Sum Up…
Avoiding bad tenants is a game of risk, but it’s a game you can win. By pre-screening effectively, interviewing carefully, saying ‘no’ when necessary, and fostering positive relationships, you can mitigate the risk and feel confident in your ability to attract and retain great tenants.