Do you want to avoid tenants that you’ll need to evict and will cost you thousands of dollars?
I’ll share my 8 biggest red flags I see on rental applications.
Then, I’ll talk about fair housing laws and how to avoid getting sued.
Next, I’ll show you the best rental criteria to judge applicants by, and walk you through how to legally deny applications.
I self manage 30 properties, and it takes very little of my time.
Here we go with red flags on applications.
Some of these are kinda funny.
In order of severity with Number one being thee worst!
#8 The instant break-up
This one’s kind of funny, and I’ve seen it many many times.
I have an important rule. Any adult who will live in the house is on the lease and fills out an application.
This is so you can run a credit and background check on them. You don’t want a felon or someone who’s been evicted living at your property.
Ask me how I know.
On some occasions, I’ll have a woman apply for the property. I ask if anyone else will be living at the property and she will say her boyfriend.
I say great. I need him to fill out an application so we can do a credit and background check.
This usually results in an instantaneous breakup. It’s miraculous to see.
You know what, I thought about it, and my boyfriend won’t be living at the property. Just me.
This is a huge red flag.
Let her know that you cannot continue processing her application until her boyfriend fills out an application.
You will get lots of pushback, texts, phone calls, voice messages, promises he won’t live there and maybe some profanity, but stick to your guns.
You’re not denying her, but putting her application on hold until the adult she indicated would live there fills out an application.
If you let her move in, she’ll more than likely sneak that boyfriend in, and he’s probably a shady dude. Don’t fall for it.
#7 Staying in a motel
When you ask someone where they are currently staying. They might tell you they are currently at a motel.
They usually talk about how expensive it is and how it’s a dangerous place to live, especially if they have children.
And they would be correct.
I’m not talking about staying at a Hyatt or Marriott for a few weeks between properties, I mean someone who can’t find anyone to rent to them, and is staying in a by the week or by the month seedy motel.
Think a really bad run down Motel 6. Like something out of a movie. It’s the kind of place where drug deals and prostitution is common.
These people will often come off as desperate. They are. And while I sympathize, it is a bad idea to rent to them.
The typical applicant does not end up in motel like this. It is a symptom of chaos in their lives.
Common reasons for being in this type of motel are thrown out of the place they were currently living, being evicted, or having felonies and substance abuse problems.
They will likely have unsteady income if any, and will not be able to give you a good rental reference.
Proceed with caution.
As with all red flags, not everyone in a motel is bad news, but many are.
#6 My current landlord is horrible
There are several variations of this. The place I live is dangerous and I gotta get my kids outta here, the landlord won’t fix anything, the landlord is evil, etc.
It is important when finding a suitable tenant that you can confirm they have successfully rented from someone else in the past.
Your best chances of avoiding problems are when a former landlord or property manager tells you, yes this person paid on time, Yes, they didn’t cause problems,, and yes, I would rent to them again.
The big problem with people who complain about their landlord is they usually have a very different story than their landlord or property manager does.
There is no way of knowing who is telling the truth in these cases, the evil landlord, someone scary and heartless like me, or the poor innocent tenant. Unfortunately, you need to give the benefit of the doubt to yourself.
Try talking to previous landlords, but If you can’t find a property manager or landlord that will give this person a good reference, don’t rent to them.
#5 My Mom, the landlord
I’ve seen this one myself enough that it has to be on this list!
Newsflash. Sometimes tenants lie to us. They know something about their past will keep them from getting the property, so they lie about it.
Ask me how i know.
Some applicants don’t want you talking to their landlord because they were evicted, or had other serious issues.
So they might list the actual address they lived at, but then list a friend or family member to pose as the landlord when you call.
How do you get to the truth if you suspect this?
A few suggestions. Look up the address on google maps. If it’s an apartment complex, contact the property management office yourself.
Next, lookup who owns the property. This is done through the county’s property tax website. I’ve done a video about how to look this up. I’m pointing up at it right now. Click on it.
Whoever you talk to on the phone, make sure they either are the owner or know who the owner is. If they don’t, this is a red flag.
Ask for a copy of the lease. If they can’t or won’t provide it, red flag.
Ask for a copy of their drivers license. This can sometimes reveal an address they lived in that they haven’t told you about. Maye they were evicted from this address.
Lastly, you should request checking account statements. These statements will show rent payments and work deposits. If they don’t, that’s an issue!
Living with friends and family
Here’s a good hard fast rule. Don’t rent to someone that can’t give a prior rental reference. It’s best not to take first time renters, even with cosigners.
Sometimes, when you ask for a prior rental reference, they’ll tell you they’ve been staying with friends or family.
Other times, they’ll tell you the old landlord isn’t reachable because they died or moved away.
If someone is in their thirties or older, and claims they’ve been living with friends and family up to that point, this is a red flag. That’s not normal, and they probably are hiding something and have problems with income and or prior evictions.
Friends and family members don’t count for prior rental references. Don’t take on first time renters like students or people that just moved out. They are sometimes flaky, disruptive, and don’t typically stay long.
#3 I’ll pay six months in advance
Lots of amateur landlords don’t understand why someone offering to pay rent in advance is a huge red flag.
Who doesn’t want more money up front?
I don’t. Why? They know they are high risk.
If they offer you rent in advance, this is usually in exchange for you not asking too many questions. Not confirming income, running a credit or background check and talking to prior landlords or property managers.
Sometimes, this is someone who is involved in illegal activity.
Make sure you verify income, prior rental references, and do credit and background check. It is extremely likely you’ll find something you don’t like when someone offers advance rent.
Onto number 2. This and number one are almost always bad news!
#2 I need to move in fast!
I’ll give you deposit and first months rent right now!
Again, amateur landlords might get excited about someone who tells you they’ve got the first months rent and deposit in cash and can move in today.
Maybe it’s taken a while to rent this property out, and they were getting nervous.
This person is not your solution. This request is a huge red flag!
Someone who says they want to move in right away is usually a sign of drama or chaos in their lives.
The first strange thing is, they are almost always willing to do this without even looking at the property. They are desperate. If it has walls and running water, they’ll take it.
They’ve likely been evicted and have nowhere to go. They got kicked out of a friend or family members house, and don’t want to end up at a motel, which was #7 on the list.
They will ask you how long the process will take, and press you to do it faster. They will seem desperate and in a hurry. They are.
Always tell them the process takes at least a week or so, and it is not something you are willing to rush..
Let them know if they meet your criteria, you’ll do your best to get them in as soon as possible.
FYI, they know they won’t meet your criteria. That’s one of the reasons they want to move in today. Once they’re in, you can’t get them out!
Go through your process of verifying income, prior rental history, credit and background check, and take your time.
Onto the phrase that is the biggest red flag in real estate investing in my experience.
Everytime I hear it, I have a good laugh.
#1 on our list.
#1 If you’ll just give me a chance!
This has a very specific meaning.
It means the applicant acknowledges that something about them is alarming or undesirable.
Usually it’s a combination of income, credit, criminal, and even eviction issues.
They want you to take a chance on them anyway, as they promise this time will be different and they are turning their lives around.
They are appealing to your sense of charity. You have the power to give someone down on their luck a chance.
Isn’t that beautiful?
If you would like to do this, and it makes you feel good to provide charity through your real estate business, then go for it. I hope you have deep pockets.
But I can tell you, every time I’ve done it, I’ve lived to regret it. It’s cost me thousands, sometimes more than ten thousand dollars to clean up their damage and mess.
If you want to be successful in real estate, you have to acknowledge risk when it presents itself.
If you ignore obvious risk factors, you will not be in real estate long.
How do you mitigate your risk legally.
Here’s the process, and I’ll break it all down for you.
- You understand fair housing laws and have rental criteria that don’t violate them.
- You deny applications that don’t meet your legal criteria.
Here’s what you need to know from the Fair housing act to keep yourself out of trouble.
Fair Housing Act
You cannot discriminate in property rental based on
- race
- skin color
- sex
- religion
- nationality
- disability
- family status
Family status means you can’t prefer married couples or exclude single mothers or say you don’t allow children, etc.
Some states can add more to these rules, but no one can do less.
What ARE you allowed to use as criteria to find a low-risk tenant?
You can use information like what their income is, information given from prior landlords or property managers about their payment history and ability to take care of the property, info from credit and eviction reports, and in most states, the existence of felonies and bankruptcies.
Here’s a good example of rental criteria that you could use on your properties that would be legal in most states.
- Verified income of at least three times the rent
- A good rental reference
- Credit score of at least 600
- No evictions, felonies, or open bankruptcies
- Incorrect information (this means a lie) on the application
- Incomplete application
The income and credit restrictions I just listed work well in a city where a 3 bedroom 2 bath house rents for $1000 a month.
If you are in say Southern California, and the same three bedroom rents for $3,500 a month, then you may have a different income and credit requirement.
600 is pretty low, you may decide 700 or higher. 3 times the rent may be tough in So Cal. You can adjust lower.
When you get a rental application, make sure they meet these criteria, and then confirm it all yourself. Make sure no one is fibbing on the application.
You will contact the employer to verify income.
You will talk to prior landlords or property owners, or in some cases email them to get a good reference.
You will run credit and backgrounds checks.. Don’t take a credit or background check that someone provides you. You need to run them yourself. Some will say they already paid Zillow to do a credit check. I don’t accept these.
Your rule for choosing a tenant should be the property goes to the first qualified applicant based on your rental criteria. If you stick with this rule, and have legal rental criteria, you’ll stay out of trouble.
Now for…
Denying applications
Most applicants will not meet your rental criteria.
You need to deny applications the correct and legal way. This method works in most states, but you need to run this process and your rental criteria by a real estate attorney in your city to make sure you’re legit.
You need to let applicants know either by mail or electronically by email that you are not selecting their application and tell them why. An example would be, did not meet the income requirement, or applicants with evictions do not qualify.
If a credit score was ran, you need to provide information about their consumer’s rights under the Fair Credit Reporting Act. I use www.rentprep.com and this is taken care of automatically.
So I gave you 8 red flags to consider when looking at rental applications.
To be clear, you do not deny people for having one or more of these red flags. It is just an indicator that they will likely not meet your legal rental criteria. So be thorough in verifying what’s on the application.
Remember, tenants sometimes lie.
All you need to do is take their application, make sure it your criteria, and then make sure what they wrote is true by checking yourself.
Too easy.
If you have more questions about rental applications and the process, ask in the comments below.
Rich on Money