You want to find the best tenants.
That’s how real estate money is made
You don’t want to rent your property to a bad tenant.
A nightmare tenant.
It could end up costing you lots of money in repairs, turnover fees, and lost rent.
Keeping these bad tenants out of your property is not as hard as it looks.
First, I’ll tell you the two most important things I look for.
Neither of them are credit score!
Then I’ll tell you the 6 red flags to avoid.
You’ll do much better than 99% of property managers if you follow this closely and…
You’ll make more money overall!
This is by far the most important item to focus on for finding a good tenant.
Do they make enough money to pay the rent each month?
My simple rule of thumb is, verifiable income of at least three times the monthly rent.
You will get all kinds of info from the applicant, but the thing you want to find out the fastest is how much verifiable income they make in a month and how long have they been working there.
Verifiable income means they can show you paychecks or paystubs and checking account statements where paychecks are being deposited.
This is also verified by speaking to someone at the company. Hopefully you can confirm this person is real and actually works at the company. A good way of doing this is calling a different part of the company, and asking if they work there and what their phone number is.
I like the applicant to have been employed there at least a year. Less than 6 months is concerning, and if they were just hired, I wouldn’t really count that as verifiable income.
Verify Rental History
Second to income is still not credit check. It’s rental history.
In the application you will ask them to list where they’ve lived the past several years and contact information for a landlord or property management company.
Your job is to talk to someone that can verify what they said is true.
The important questions to ask are: how long they lived there, if they paid on time, if they are currently in a lease, and if they currently owe a balance.
People sometimes have friends or relatives pose as landlords, so watch out for this.
My trick is to look up online who owns the property, and then see if that matches the story you are getting from whoever you are calling. You can ask them who owns the property. They should know.
Sometimes, people will say they are living with friends or relatives. That may or may not be true, so be wary in these situations. I like to check the address they give you on the application as their current address with whatever is on their driver’s license and paychecks. Ask them to explain the other addresses.
Bottom line is, if you can’t somehow verify what they said about their previous living arrangements, that is a problem. They’re hiding something.
Strongly consider moving on.
What about Credit Checks?
Yes, I know everyone tells you the big secret to picking good tenants is the credit check.
I would disagree.
It’s not near as useful as income and rental history.
Even good tenants have bad credit. If they didn’t, they probably wouldn’t bother renting and would buy instead.
I expect that they don’t always pay their credit cards, medical bills, and iPhone contract on time.
Those things don’t concern me.
I don’t care about the credit score so much.
I care about the big things you get from the report.
If they’ve ever been evicted before, they are just not worth the trouble. This is especially true if they marked on the application they had never been evicted, but it comes up on your credit report/background check.
This is also asked on the application. If they have a felony, you don’t want them. If they lie about it on the application, even more so.
If a bankruptcy is already closed or discharged and a few years old, then I’m not so worried if everything else checks out.
If you have a recently closed bankruptcy, it makes it harder to do another one anytime soon!
If they have an open bankruptcy (still being processed), that’s a big problem! A judge could rule that they don’t have to pay rent or damages. It also could delay eviction proceedings.
A good credit/background check should reveal this.
It turns out there are several red flags that come up often that are your cue to RUN AWAY. You will not find a good tenant if they present any of these.
Need to Move in ASAP
This is first on the list for a reason.
This, above anything else, would cause me concern that this will be a horrible tenant.
This is usually a sign of someone being evicted, and trying to find another place to go.
It may be that the eviction is so new, it won’t show up on credit/background checks yet.
The trick here is to explain the process to them.
You are in no hurry to move anyone in, and you are running credit checks, verifying income, and talking with current and former landlords.
They’ll typically move on once they hear that.
Offer to Pay Several Months Upfront
A good tenant will not offer this.
This is often accompanied by wanting to move in ASAP, and it’s equally concerning.
An offer to pay several months upfront means they know there is something in their background that would keep a responsible landlord from renting to them, and they are hoping that for enough upfront cash, you won’t ask!
The solution is the same. Tell them you need to verify income, talk to landlords, and run credit and background checks.
They are likely to hangup before you’ve finished that sentence.
They insist on paying in cash
While there may be legitimate reasons for wanting to pay in cash, it’s a problem for many reasons.
For those landlords that go around and collect cash, or take cash payments at their management company, there is an inherent danger in carrying cash around. If somebody knows you’ve got cash on you, you could be attacked and robbed.
People that insist on paying are in certain cases hiding something. They are sometimes involved in illegal activity such as drugs, and may not want this income trackable by banks or the government. They may be avoiding being taxed on their income.
Waste of your Time
Getting paid in cash is just more work for you. I have 30 properties, and 29 of them pay electronically. The one that pays in cash (inherited tenants from a recent purchase) is just a hassle.
Either I go there in person every month, or I ask them to bring it to me. If I’m out of town, I have to find someone else to go to that. I don’t want to chase down people for their money each month!
Imagine how much work that would be if I did it on all 30 properties.
Will you Consider Rent to Own?
You may not be familiar with rent-to-own.
It means that instead of going to a bank and getting a loan for a property, someone can go to a landlord and buy the property from them. The landlord acts as the bank.
Good tenants don’t need rent to own.
Usually, the renter pays a downpayment of several thousand dollars and might even pay a monthly payment higher than market rent. While this sounds appealing, these arrangements have a way of not working out very well.
Why is this a red flag? The people that are asking for rent to own often have something pretty bad in their background that makes it hard for them to buy or even rent a property. It could be evictions, criminal history, lack of steady income, or a combination of these.
For me, Facebook marketplace has proved to be my second best source of finding tenants next to Zillow (which is now a paid service).
When you get inquiries from Facebook Marketplace, you can instantly look at the profile of the person who is applying. You can see their posts, photos, and learn something about their lives.
If you see posts that scare you, posts about violence, drugs, partying, etc. you can get an heads up that this may not be the best candidate for your property.
Another things that is a red flag is their email address.
If the email address has something about guns, drugs, gangs, violence, etc., you may want to take that into strong consideration.
Ask me how I know.
Disclaimer: You can’t legally disqualify people for their Facebook profile, email address, or based on any type of discrimination of a protected class. You have to have a more legally sound reason for doing so. Make sure you set clear criteria and can explain why you didn’t rent to someone.
Some reasons you could deny someone would be doesn’t have enough verifiable income, has poor credit, or lied on their application.
Credit Check on Boyfriend/Girlfriend
This one seems to happen to me a lot.
It’s always smart to ask who else will be living in the property.
They might say boyfriend, mother, roommate, who knows what.
This is IMPORTANT INFORMATION.
I then tell them that each adult living in the home needs to fill out an application and go through a credit and background check.
Inevitably, someone will tell me at this point that their bf/gf/significant other won’t actually be living in the home, but just spending the night once in a while.
This is what I like to call a red flag. If you ever rent to this person, it is virtually guaranteed they will move that person in permanently and there is something in their background worth hiding from you.
What did you think of my list?
I think I got the big ones.
If there is something I missed, I would love for you to put it in the comments. I may add it to the post.
Anyone got a crazy story we can all have a good laugh about? Comments.
Use these red flags to save yourself from that dreaded nightmare tenant.
Get yourself the best tenant and make more money.
Rich on Money
Read my mandatory How to Survive During this Pandemic post. It was written at the beginning, but it’s just as accurate today and next year.