In a previous article, we talked about the common advertising mistakes that property managers make. In this article, let’s talk about one more area where there is a lot of potential to slip up – screening applications and potential tenants. Having the right tenants can make your life immeasurably easier as a landlord. On the flip side, not being able to select the right ones can cause a lot of problems.
Let’s take a look at some mistakes that are commonly made by property managers when they are evaluating applications.
1. They don’t ask enough questions.
Anybody can use a template application they downloaded from the Internet or borrowed from a colleague. Is that the best way to go? Absolutely not.
There are a lot of advantages to using a template as a starting point. You need to have some legal information and jargon present in your application. But, you also need to make sure that the template you are working from is comprehensive enough. Look into the applicant’s history as a tenant. If they’ve falsified information or omitted some facts, you need to know. Call any previous landlords that they mentioned in their application to get a better idea of the applicant’s overall personality.
2. They look at applications as an income stream.
It’s fine if you want to charge potential tenants a small amount for an application. It might even filter out some people who aren’t very serious about moving in. however, the trouble comes when you start using applications as an income stream. Even ignoring the ethical problems with this approach, your reputation will suffer if word spreads in the industry that you are fleecing your clients.
3. Looking at your applicant’s credit score.
“Why do I need to check someone’s credit score?” you might ask. You aren’t offering them a loan. But in a way, you sort of are. You are giving them access to your property on the promise that you will be compensated every month.
In addition, a good credit score speaks to the general stability of a person’s financial habits. Tenants with a stable financial history are less likely to slip up on payments. You should also ask for bank statements to ensure that your tenants aren’t living hand-to-mouth every month.
4. Misunderstanding the applicant’s financial situation.
There’s a lot of misunderstanding about how much your applicant needs to be earning before you are comfortable with handing them the keys to your property. Some say it needs to be at least twice the rent amount, and some quote an even higher number.
As far as you are concerned, there’s only one thing that matters – Can this person pay the rent on time, every single month?
As long as the answer to that question is yes, you don’t need to worry about anything else. Of course, you need to make sure there’s enough of a buffer for them to afford life in the particular area your property is located in. this includes food, groceries, commuting, any other loans and taxes they might have. But suffice to say, there isn’t an exact multiple that you should be looking for.
5. Implying that an in-demand property equals a higher quality of applicants.
This simply isn’t true, although it’s an easy mistake to make. While you might assume that areas with a higher amount of rentals are indicative of a better class of people moving into properties, you would be forgetting one simple thing – people lie. And when there’s a large amount of competition for rentals, the chances of someone doctoring an application are even larger.
Property management is a lucrative business, if you know how to do it right. If you’re diligent enough when you evaluate the people who apply for your properties, you will make a lot of money. Just make sure you aren’t doing any of the above.