Tenant Screening Tip #2

Proper tenant screening is the absolute key to a successful rental property. Good tenants take care of the place, pay rent on time, which equals a happy owner. You could have the right property, at the right price, with the right management team, but if you get the wrong tenant, they can quickly turn your property from bliss to misery. In my previous blog post I revealed a tip on how to attract more applicants that will have incentive to be more honest in the application process. In these tenant screening tips blog posts I will not go over the traditional, or conventional methods that 100% have their place and are very important (credit checks, rental verification, employment verification, etc.). What I want to touch on is an unconventional method that serves as a support to all the traditional methods that we use.

Social Media.

That’s right, I use social media to get better insight on prospective tenants. Now how would this be useful or helpful? Let me give you a recent example. We had what looked to be a qualified applicant for a nice home in Gilbert. They had good credit and good jobs and had indicated on their application that they had a “Lab mix” as a dog. On this particular home, the owner was okay with a single pet with her approval. I looked up the people on Facebook and sure enough there were countless photos of their dog on their page. You could tell they loved their dog and she was a big part of their life. The perfect pet owner, right? Here was the problem, the dog was not a “Lab mix” as stated on the application, she was a Pit Bull. This would have posed a huge liability for the owner and their insurance would not have covered an incident with this breed of dog. Of course there are other methods of finding this stuff out like requiring a photo of the pet, inspections, etc. But by spending about 1 minute on social media, I was able to detect a major issue and expose an applicant that was willing to lie to rent this property.

Most of the time social media doesn’t support or expose prospective tenants, and that is fine. But every once and a while it really helps us avoid a a potentially bad situation by identifying a discrepancy in the application that a credit report might not find. If it’s there to use and possibly help in deciding whether or not to rent to someone, then you should use it!

Tenant Screening Tip #1

Attract the best tenants possible all while being ethical.

For the last several years, the Phoenix rental market has been on fire, and even more so of late. If the rental product is quality and priced right, it should rent within a few days. This has given a nice advantage to the investors, and has made life a little more difficult for the renter. The most common method to rent property is to collect applications, along with the application fees, and then select from the pool of applicants. This has given landlords choice, which is a great thing when trying to put the best tenant possible in their rental property.

So what happens to the other applicants? They get declined.

So what happens to their application money? The property management company keeps it.

That doesn’t seem right, does it? Many companies are taking advantage of the hot rental market and using this as a money making scam. Yes, I said scam. The reason so is they will collect applications for a week, full knowing that they will only accept one. This is a disservice to their owner by waiting and possibly losing a good applicant to another property, and the applicants who are waiting in hopes of getting the property who will lose out on time if declined. The reality is if there are a large number of applicants for a particular property, then some qualified applicants are getting declined. I can’t tell you how many times I’ve had a prospective tenant ask “are there a lot of applications on this property?” They ask that because they are sick of, or just cannot afford to lose more application money. In a market like this, properties rent fast and it is very competitive.

I don’t believe in this method. Here is what we do:

I make all application money refundable. Am I leaving money on the table? Of course, but let me explain the payoff. The advantage to this approach is 2 fold:

  1. Applicants will apply without fear of losing their money. This will provide more opportunities to my owner, whom I represent to locate and place the best tenant possible.
  2. There is a caveat to the application money being refundable. The applicant must answer everything 100% truthfully on their application. Tenants don’t want to chance losing their application money, so they open up about everything. This gives me, as the property manager, so much more insight that a credit report might not tell.

Despite these clear cut advantages to making application money refundable, it’s just the right thing to do. I can’t tell you how many applicants have thanked our firm for this practice. Placing the right tenant is part of the foundation to having a successful rental property. This is just one of the many unconventional methods that we deploy to attract and secure the best tenants our market has to offer.

Best Strategy For Long Term Rental Success

This single method should net you thousands over a 5+ year period.

If there is one thing I have learned with rental property, it’s that there many ways to get to the same destination. Everyone has their own strategies and ways of business. I find it fascinating to learn how certain investors do things and see what I can pick up to add to my own strategies. I have managed for all types of investors and had a front row seat on how crucial decisions have played out. This has given me a unique perspective and shaped how I manage my own investments. Now by no means am I re-inventing the wheel here, but there is one question I ask my self every time there is a decision to be made:

What decision will make me the most money over a long period of time?

It’s a very simple question, but what it does is completely removes me from the moment and allows me to get a macro level view, versus the in the moment micro level view. When we can zoom out, many times we can see the entire picture a little clearer. What is my goal, make the most amount of money this month, or over a 5, 10, or even a 20 year period? This perspective forces me to make good, solid, long term decisions that will serve my investment well. Let me give a few examples:

  1. 20 year old AC breaks and needs a new compressor. In the moment thinking says replace the compressor for $1000 rather than replace the ancient unit for $4000. That saves money now and helps that given year’s return. But is that the wisest choice? Is putting $1000 into an old unit that will inevitably have to be replaced anyways down the road a good call? Does having a newer, more efficient unit keep my tenant happier and promote long term tenancy? Will it allow me to get a higher rent? Let me tell you, I’ve rented to tenants who were moving due to high utility bills, constant issues with their AC, and I’ve lost tenants due to the same. I’m with you, it sucks to dump $4000 into a new AC unit, but it does improve the product and can be argued quite well that it is the best long term decision.
  2. Tenant causing problems in a multi-unit building. It’s hard to kick out a paying tenant, and many investors put up with way too much sometimes to avoid the dreaded vacancy and loss of rent. Most of the time they don’t consider the collateral damage they will inevitably incur by keeping the problem tenant. When you take my approach and zoom out, it makes it really easy to remove the problem tenant. You deep down know they are not a long term fit, you know they will end up running off your good tenants, so rip the band aid off and get it over with. From a long term perspective, it is the right decision every time.
  3. It’s a little slow renting a unit and a risky applicant appliesThis scenario is where I see most investors get into trouble. They are completely immersed in the ‘now’ and end up making a poor choice that ends up costing them thousands. Many times it is because they are charging a rent that is too high, and in turn don’t have the quality options to choose from. So rather than let their property sit vacant, they take the chance. On the other hand, if you ask yourself the golden question, will this decision make me the most money now, or the most money over the next 5 years? The answer becomes quite clear and you can avoid the high risk tenant that quite frankly, is not worth the risk.
  4. Send the plumber or handyman on a tub leakI’m all about the handyman on minor things, but one thing I’ve learned is when there is a shower valve, or any other slightly more complicated plumbing issue, the plumber is the way to go. Short term thinking says go with the handyman, I’ll get a better deal. The experienced, long term question of ‘what will net me the most money over the long haul’ says use the plumber. Yes, it costs more, but my experience has proven that the problem goes away for good. When you get the handyman tackling issues like that, it always seems to come back at some point. This is a minor example, but still holds true to the philosophy and approach.

This approach will help guide the right decisions in most cases. I see far too many investors relying only on short term money decisions, which differed maintenance, less quality tenants, and ultimately costs them thousands over time. Most of us bought rentals for the long term benefit, so make the decisions now that will best serve that original plan.

Top 5 Things To Consider When Hiring a Property Manager

Great starting points when making a property management hire.

Being in property management for many years in the Phoenix market, I recently had to hire a property management company in another market for a rental property I had acquired. Based on my experience managing hundreds of properties over the years, here are the top 5 things I think every investor should consider when making a hire:

  1. Who is actually managing my property? This is huge, and far too many investors overlook this simple question when interviewing and hiring a property management company. Here is the reality, there are a lot of property management business owners in the Phoenix market that are very talented, knowledgeable, and know what they are doing. Here is the problem though, most of them aren’t actually managing your property. While you love what they had to say, they are handing your property off to a hired manager that might not be a great fit for you. The individual managing your property (not the company), will have the biggest impact on the success or failure of your property. So make sure you ask who will actually be managing, and schedule an interview with that individual to make sure they are qualified and the right fit for you.
  2. Location of the property management company. This is a simple thing to look at that I feel plays a pretty big roll in hiring the right company. The closer the company is to your property, the better job they will be able to do. They can get to a showing in 5 minutes if needed. On the other hand if you have a home in Mesa and your property manager is located in Glendale and they get an opportunity to show your property at 5:00 on a Friday, guess what? That showing is not happening! Being closer also allows the manager to have more frequent drive-bys and in my opinion, have a better pulse on the market where they spend most of their time.
  3. Longevity of the property management company. There is a cliche that states, ‘there is no substitute for experience.’ This could not ring more true in the property management industry. This is a problem solving business, and while I have been managing property for 14 years, I still frequently have situations come up that are unique and new. Having experience in how to navigate issues while following the Landlord Tenant Act is crucial. One of the most underrated benefits of hiring a professional property management company is their knowledge of the local laws when it comes to tenants and protecting your liability. All it takes is one bad property manager and the landlord ends up getting sued for their mistake.
  4. Reviews. Let it be known that I hate reviews. Most people won’t go out of their way to give a review on a positive experience. The ones who will take time out of their day to post a review is someone who is upset or has been wronged! So why are reviews important when choosing a property management company? Simple, I don’t mind if I see bad reviews from tenants. This usually means the management company is doing their job. I don’t even care about positive client reviews, those could be solicited for all I know.  What I’m looking for are client complaints. If a company has clients destroying them online, that’s a good indicator they aren’t the right company for you.
  5. Do they have an in-house maintenance company? This is really simple. Owning a maintenance company or having an in-house maintenance company is a CONFLICT OF INTEREST. This tells me where their priorities are. I’ve heard all the BS excuses like “we can control the scheduling to get repairs done sooner” and “we get our clients a better deal” and so on. There is one glaring reason property management companies open their own maintenance company, TO MAKE MORE MONEY. Sorry guys, I need my property manager to be 100% on my side when hiring work done. I need them to make sure I’m getting a fair price. I want them to have options when work needs to be done. This motivates a vendor to do good work at a good price because of the repeat business property management companies can provide. They know there is a line of good vendors ready to take their spot if they mess up. So why would I want the property management companies’ maintenance company to monopolize the work on my property?


Maximize Your ROI By Hiring The Right Property Manager

Want to maximize your ROI?

Choose the right property manager.

Property management is no different than any other industry. ‘How much is it going to cost?’ seems to be the first place we all want to go when purchasing a product or service. But is this the best approach in hiring a property management company?

Investment property is an interesting place because you bought it to get the highest return possible, I get it. When buying other products, price plays a role, but there is no ROI per say on a pair of shoes.

“Hey Rick, check out this graph, 8.3% return on my 2017 Nikes.”

Where price and value meet is where and when we typically purchase products. When investors look at PM companies, the more a firm charges, essentially the lower their return is, so they put more value in price over quality. So they hire the inferior company to save on the monthly expense thinking it will help their ROI, because hell, if that’s what it says on paper then it must be true, right?

A few months ago I was interviewed by an investor named Steve to manage a newly acquired property. Steve was excited about his new venture and he put in a lot of time interviewing local companies to manage his new home.  I thought my interviews went well and I could tell he liked what we had to offer. In the end Steve said he would like to hire my company if I would match another competitors rate, saving him $20 per month. As not to come off as soft,  weak, and desperate to my family, future grandkids, and many generations of my posterity, I held firm to my price. So Steve decided to go with the other company to save the money.

Several months went by and I got a call from Steve. Their property had not been rented yet and they decided to make a change and hire my company. I won’t get into the all the details of why the first company failed to deliver, but I’m confident to know that this would not have happened under my management. To put it simply, the first company over promised what they could rent this property for and never adjusted. If there is one thing I know in rental property, it is that the market never lies! So when it speaks, you listen and adjust. We had his property rented within a couple weeks.

Now I’m not at all saying don’t pay attention to price, obviously it matters. My advice to any investor would be to locate the best companies without the influence of price, then see what the price will be at that point. If they are competitive, then hire the right company! By not asking price first, you will have an unbiased, clear path to who will provide the best care for your investment which is what matters most.

So what did saving $20 a month actually cost Steve? About $6000 in lost rent based on four months of vacancy. As you can see by this example, the company that provided the best ROI on paper was not company that provided the best ROI in reality.  

The Truth About The Exaggerating Investor

You know, the investor who brags about how high their rents are?

They must be smarter than everyone else (insert sarcasm).

Something that has been on my mind a lot lately are the investors who feel the need to over exaggerate the success of their rentals. They just loooove to brag about how much rent they are getting and how smart they are. It’s like some crazy high that I can’t relate to, but so many investors are addicted to.

A while back I was speaking with a client of mine who at the time had a vacant home that we were trying to rent. The owner happened to stop by and run into another investor who owned a home across the street. As I’m sure they were talking about their rentals, this particular investor claimed he recently rented his home for $1800 in 2 days! Problem with this statement is after I had done

my market research, I recommended that we try and rent our home at $1500. My client immediately called me to inform me of the super investor across the street who got $1800, and then started to question me as to why we were only going for $1500?

This is not my first rodeo, and I’ve been around a little bit. So I got the address to the “$1800” home and went to trusty ol’ Zillow to see if I could find. Just as I suspected, the home had been listed for 3 weeks (not 2 days), and at a list price of $1475 (not $1800). Thank you Zillow for not removing such valuable info! I jumped right back on the phone to inform my client of the information that I had found so I could bring him back down to reality.

I don’t know why this particular investor felt the need to go straight peacock mode and lie about his investment. There are investors all over the place that portray the same behavior and I’m constantly taking those calls of “I heard the property next door rented for _____.” Then I have to pull the data, and explain why this mystery number is likely a lie.

Here is the reality, establishing a rent price is not that difficult. It is a supply and demand problem, taking into consideration what your direct competition is doing at that moment. How does your property stack up against what is available? How many comparable properties are available? That’s it folks, based on that you should be able to position your rent price pretty accurately. And let me ask you this, if there are 4 homes in the area, all comparable to yours in the range of $1400-1500, what makes you think someone will pay $1800 for yours? You are correct, they won’t. So when I hear the outlier stories of absurd rent amounts, I instantly know that some investor feels the need to peacock (I like that term, it’s funny) and over exaggerate how smart he or she is.

So can we just be honest with each other? Just owning a rental is cool, so no need to go down Exaggeration Lane.