Selecting the right property is a necessity when looking to invest in the real estate market. But equally important is selecting the right tenants. Dan Hines, Regional Director with Mynd in the Sacramento area, is here to give us his top three most important things to know or remember when selecting the right resident for one’s property.
Steve Rozenberg: Hey everyone, this is Steve with Mynd Property Management and I am here with Dan Hines. He’s the Regional Director for Sacramento. Dan, thanks for joining me today. I appreciate it.
Dan Hines: Thanks for having me on. Appreciate it.
Steve Rozenberg: Yeah. So what I want to talk about today is—this is kind of, to me, the start of the evolution of being a landlord—of either having a great experience, or having a not so great experience, and I say that from my own personal experience when I started, and that’s picking a resident. So in Sacramento, and obviously every place geographically is different, right? With different jobs and statuses and income and everything that’s going on specifically with the location. If you were to maybe nail it down to let’s say three things, three things that you think would be the most important when you are selecting a resident to live in your rental property, what advice would you give the average investor that’s looking for that?
Dan Hines: Yeah. So it’s like the old saying, “A good offense is a great defense.” Right? A lot of investors are apprehensive to get into becoming a landlord and it’s, “Well what if the resident messes up the property? What if the resident doesn’t pay? What if…” Right? All those things that can go wrong. The best way to get in front of that is to just have a very strong, stringent screening practice. And you need to have that stuff figured out before you have an applicant who’s ready to move in in a week.
Plan your stuff, make sure you know what you’re going for. The top three things in my mind: income, that’s huge. You need to make sure that the resident has a consistent, steady income and they can afford the place. Rental history. Are they first-time residents? How are they leaving their last place? Are they getting their security deposit back? And then just the overall application due diligence process, right? Do you understand, do they have collections from a utility company? What’s their credit score? Those things will normally help you triangulate and figure out the overall quality of this resident.
The major one that I just really want to stress, though, is being totally clear on the income situation. Too many times I’ve seen situations where a landlord wants to be nice. They’re trying to help the person get in. They want to be flexible. Yeah, it’s a little tight on the income, but they say they can make it work and it’s okay.
And then a few months down the road there’s a surprise. Now the resident can’t afford to pay the rent and it’s a really tough situation for everybody now. And it came from someone trying to bend the rules and trying to be nice.
Steve Rozenberg: Yeah, absolutely. I used to always say, you trust but verify. Right? And the numbers will tell you. Even to your point, what I have learned, when I was always selecting a tenant, we used to always say, if you look at their past, you’ll see their future. Meaning, if you look and see what they’ve done leading up to today, if they’ve hopped around on jobs and they’ve been kicked out of other places, and they owe people money, they’re not going to change for you. That’s a habit pattern that’s going to stay. But more importantly, what I think a lot of people don’t realize is if you bend the rules, let’s say you get that gut feeling where you’re thinking, “Oh, this person. I’ve got a good feeling about them. They’re getting a good job, or this is going to happen,” and you bend your rules. What happens is, if you did not select one tenant and all of a sudden you selected this tenant and that tenant was qualified, that could all of a sudden slip into discrimination or a fair housing issue because you have a set of rules that now you’re bending the rules.
And it could be skewed and looked at in any light. And I think that the biggest thing that I’ve learned, and tell me what you think, is that you’re running a business. And that business has policies and procedures for a reason. And it’s not there for you to bend them at will. And I know a lot of people, and I, when I first started, I did this also, where I would bend the rules as the vacancy term lengthened.
So all of a sudden my house was vacant a lot longer, I would accept something different. And the challenge was, is every time I did that and I did not stick to my rules, it bit me. I mean, I can’t name one time in all the properties that I’ve owned that it actually turned out to be the better. That I actually said, “man, I’m so glad I did that. That worked out great for me.” You know?
And I mean, that’s just what happens. And I think that a lot of us, you said it great when you’re talking about the things that you need to do, and you’ve just got to be able to verify that income and make sure, hey, you know what? I’m not going to say, it’s not that you don’t need to be nice to them, but I think it’s a matter of you being business and you’re running a business and the business dictates you need a certain amount, whatever you think it should be, that’s the amount you need to have. And that’s a go no-go.
And if it doesn’t, you don’t have the option to change it. I always tell landlords, “If you were working for me, would you just change things at-will or would you do what your job description said?” Well, you’re working for yourself, so that’s why you think it’s okay to bend the rules.
And that’s the challenge we have when we’re a landlord and we’re really not sure. And I don’t know about you, but every disaster I’ve talked to in the landlording industry, it’s normally because they did not stick to the rules. Or maybe they didn’t have rules, they didn’t have written disclosures of what they would and would not accept. And that’s normally what seemed to bite them.
Dan Hines: Right. Right. So to the point of running it like a business, you have to set your business up for success. And you do that by planning, by knowing what your lanes are, knowing when you have to make certain tough decisions. And if you start off your tenancy with someone and you haven’t set clear expectations and you haven’t set them up for success, meaning, are you placing someone in the property that can legitimately afford it? If you’re not, you cannot be surprised. You are forfeiting your right to be surprised.
In six months when they tell you, “Hey mister landlord, I have a problem. I’m late this month.” And I can’t tell you how many times we’ve taken on clients who have residents in place, thousands and thousands of dollars that they’re trying to piecemeal rent checks together. And it’s, something happened and they got in over their head, and it just creates a really unfortunate, unfortunate situation for everyone involved.
Steve Rozenberg: Yeah, it does. And many landlords and investors in this world, they fail in this. But they fail, I think, because they fail to plan. And this, I believe, and I was someone in the initial, when I first got investing way back when, I didn’t know anything about this. And this was the root of a lot of heartburn and headache and challenges because I didn’t run it like a business and I did not run it to where, these are the policies, these are the procedures, and these are my qualifications. So this is great information. So just to wrap this up, give me the three again. We said income, is that right? Income was the first?
Dan Hines: Income.
Steve Rozenberg: And the second was …
Dan Hines: Rental history.
Steve Rozenberg: Rental history. And third?
Dan Hines: The third was just the overall application due diligence process. A credit check.
Steve Rozenberg: Right, yeah. Are they doing what they’re supposed to be doing? Are they supposed to show up at 5:00 PM to give you the deposit money and they don’t show up? To me, these are indicators because it’s like they’re on their best behavior today. If they’re not even doing what they’re supposed to do today, how does it look six months, a year, or two years from now? And again, you look at their past, you’ll see their future. So that’s great.
So Dan, if somebody wants to get a hold of you and they want to learn some more about Mynd or know more about the Sacramento area, how do they do that?
Dan Hines: Yeah. We’re easy to get in touch with through our website, Mynd.co. You can reach out to us through our 833-FOR-MYND phone number. We also have a lot of really cool stuff going on the Facebook page also. Website’s the fastest. Looking forward to speaking with you.
Steve Rozenberg: Yep, sounds good. And if you want to join, we have a Facebook group. The Mastermynd Real Estate Investment Club, and it’s Master M-Y-N-D. But please join, there’s a lot of investors on there and we’d love to have you. And this is Steve, and this is Dan, and I want to thank everyone for watching and we’ll talk to you guys later. Bye bye.
Choosing the right tenant for one’s property can prove to be a challenging process. But knowing what to look out for and how to set the right criteria for potential residents can make this process far easier. Having an understanding of a potential tenant’s income is the first step in choosing the right residents for one’s rental property. This gives the investor or manager the best understanding of whether an individual can afford to or will be able to keep up with rent payments.
Likewise, an investor or manager should seek the potential tenant’s rental history. As a person’s past is a good indicator of their future, knowing a renter’s history can give a property owner the best outlook for how that individual will fare as a tenant. Furthermore, a property owner should be diligent during the application process. This means knowing a potential tenant’s credit score, for example. This can also give the owner an understanding of whether a person is right for the property and can afford to live there, overall.