Prospective Tenant? When in Doubt, Just Say No!

I had a chance to avoid an eviction.  I don’t think you can avoid them all, but this one, yes.  I didn’t listen to the obvious warning signs.

My experience with purchasing my first rental property was scary enough to give up on real estate investing for the rest of my life!

Actually, my wife recently remarked to me that she was SHOCKED when, after going through the stress of purchasing the first rental property, she realized I wasn’t going to stop. She said she thought I had enough!!!

If you haven’t read about my first rental yet, read about it here.

After I bought this house, I discovered the seller had concealed the fact that something under the house had pushed up the floor almost two feet in the middle of one of the rooms. It was quite the ordeal figuring out what it was and how to fix it.

Also, while the house was vacant, someone decided to climb into the crawl space under the house and steal all the copper plumbing.

So I guess real estate investing isn’t for me!

• But my love for real estate runs too deep!
• My threshold for self-punishment still not met!

I had a desire to succeed in real estate.

I decided to get back on that horse and keep riding!

NEVER!!

With a little experience under my belt, I started making offers in the same area for house #2, and eventually bought.

I try to avoid having my houses vacant too long.

One of the best ways to avoid this is having good tenants. A simple lesson I’ve learned is, a discounted rent for awesome tenants is worth WAY more than high rent for crappy tenants.

With a crappy tenant, your chances of doing an eviction are obviously higher. The eviction process can be expensive and stressful.

I have a good management company. I don’t enjoy the headaches of dealing with repairs, showing houses, running credit checks, etc. I’ve done this all in the past, and found the 10% of rent I am spending for a good management company is WELL worth it.

The management company for the most part doesn’t bother me. They only come to me when there are decisions to be made that are unique or expensive.

And this was a unique question.

The management company was having a little trouble finding good tenants for this property. One day they called me and said that they found someone, but the four employees at the management company were split on whether or not I should rent to her.

They wanted to explain the situation to me, and see what I wanted to do.

They told me there was a single mom who had three kids. Her income was not quite high enough to qualify for the rental. The management company likes an income of at least three times the rent.

She had been through a nasty divorce and was trying to get her life back together. In the past, her income combined with her ex-husbands would have been plenty for the rental.

Her credit was bad, but that was only due to the divorce. Up until that point, she never had a late payment in her life.

The management company liked her and her family a lot. They felt sorry for her.

Two of them thought I should rent to her and that she would be a great tenant. The other two in the office just weren’t sure.

I remember thinking at the time that I had the power to do some good here. I had the power to give someone a chance who was down on their luck. Or, I could just be a greedy landlord, and say no!!!

Why do I get the feeling this guy actually is a landlord?

I can’t let that be me!

(I laughed pretty hard when I found this pic)

I decided out of the infinite goodness of my heart to make an exception in her case, based on the plea from some of the members of the management company. She moved in. I even let her split the deposit up over two payments to ease the transition.  What can I say, I’m a great person.

Two months later the management company called me and told me that she had been unable to make payments, but that she called them and explained why.  It sounded like she would catch up on payments soon.  They asked if they should start the eviction process.

I wasn’t surprised to hear this, I was just a little mad at myself for seeing it coming and allowing it to happen.

I asked if she was far enough behind to be evicted, and they said yes. I said give her another two weeks to catch up, then evict her.

She made a partial payment, but not the full amount due two weeks later. I went ahead with the eviction.

          What’s the moral of the story???

Easy.

If you have to debate about it, it’s probably not a good idea. If it requires explanation or justification, probably not a good idea.

Facts speak better than stories or promises. Actions matter and words mean nothing. Sometimes stories like this will work out, but more often than not, they won’t.

She had more than one warning sign. You can overlook credit problems if all else looks good. You can overlook an income problem with awesome credit and good work history. I wouldn’t recommend overlooking all of these things or more because someone seems nice or has a hard-luck story.

Don’t forget about the importance of references.  Make sure you get personal, business, and landlord references and check them.  Overlooking this is inviting disaster.

I had a friend who came to me once because his tenant wasn’t paying the rent and he didn’t know what to do about it.

I told him to evict.

He said he can’t. This was someone he knew from church, and they were going through a rough time at work.

I asked him if he was running a business or charity.

He didn’t like my question. No matter, I’m not able to help him.

There is nothing wrong with letting someone live in a home you own as a form of charity, if that’s what you set out to do in the first place. But if you actually meant for the house to be an investment, than do what’s right for the investment.

Run it like a business.

Screen for a good tenant and evict when and if the time comes.

And it will come if you are in rental property long enough.

How did I get to 20 total properties with no mortgages in my spare time?  Read my Complete guide to real estate investing.

Rich on Money