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Selecting a tenant can be one of the most important decisions a property owner can make, but it is not so easy as picking the best one. Our guest today is Enrique Jevons, Regional Director with Mynd for the Pacific Northwest. Enrique is here to discuss his top three things to pay attention to when searching for a new tenant.
Steve Rosenberg: Hey, everyone. This is Steve Rosenberg with Mynd Property Management and I’m joined here with Enrique Jevons with Mynd Property Management, as well. And he is the Regional Director for all of the Pacific Northwest and Enrique, thank you so much for joining me today.
Enrique Jevons: Yeah. Thank you. Yeah. Good to see you again. Steve.
Steve Rosenberg: You too. So what I want to talk about today is, if I’m an investor in the Seattle Northwest area and I’m looking at selecting a tenant, what would you say are the top three things that I should be paying attention to make sure that I try to find that needle in the haystack, the good tenant that’s going to stay forever, not be a problem, that kind of person. What are those three things?
Enrique Jevons: Yeah, definitely right now for us because I—one of the things that I always do whenever a tenant goes bad, they don’t pay the bug out on the lease, I always go back to the application and look. Were there any red flags that we missed?
So, after years and years of doing just that, the one thing that really stands out more now than ever before is the FICO score as far as the ability and the willingness to pay rent. So the FICO score is, fortunately, something that’s very easy to set a standard. You apply that same standard to all applicants. So I highly recommend that you make sure that on the application that you pull that includes pulling a FICO score.
So that’s going to be the number one determining factor for how good they are at paying their cell phone bills, how good they are paying any other debts that they have. That’s going to show you how good they are at paying their rent on time.
Second to that then is going to be their income. So you definitely want to set a standard of how many times income you want to have for your property. So, whether it be two times income, two-and-a-half, three times, more, there is no restriction on what you can place. And it’s also a nice equitable standard that you can apply across the board and you’re not going to run into any fair housing law restrictions against that. So you want to make sure that you do implement that.
Now, some locations, for example, the state of Washington just this last year passed new state law. And this is why it’s exceptionally important that you’re always familiar with and up to date on all the applicable laws where your properties are. And if you’re not, then, of course, you need to team up with somebody who is an expert. Of course, that would include a property management company who’s always going to be on top of all the new laws. But Washington state has a new law now that all sources of income do count and must be allowed.
So you can no longer restrict against, for example, Section Eight vouchers. So you must still accept Section Eight vouchers. You can still, let’s say you have a three-times rent income, you can still impose that restriction, but that restriction is going to be on now only three times what the individual’s co-payment is. So their co-payment is $100/month and the voucher takes care of the rest, they must make $300/month in income from another source. All sources of income must be allowed with that. And I know, this is a bit of a side note but it is something that comes up on preferences. What is not allowed by fair housing laws, and this is actually nationwide fair housing laws, is you may not discriminate against, with the source of income. That is, you can’t favor certain people.
So, for example, and a common one is people think, “oh, it must be legitimate to go ahead and allow military discounts. You figure, “well, you know what? I’m in the military. I would love to have somebody else who’s in the military. I rent one of my places or just in general, I’d love to have a military family rent one of my places.” Right, sure. That’s great. But if you offer them a discount, you don’t offer somebody else, then unfortunately what you’re doing is you’re discriminating against anybody who is not in the military or veteran or whatever your discount might happen to be. Or you want to give a Microsoft discount or you want to give a Google employee discount. Those are all types of discrimination because unfortunately, you’re discriminating against anybody who’s not a member of one of those.
Steve Rosenberg Wow, okay.
Enrique Jevons: So some kind of watch out for there. Third item to look for is how long a person stays at a location. So if they’re bouncing around three months, six months, one of the questions you can be like, “were those just short term portrait rental housing you were at or you just breaking your lease every single time?” And of course, the shorter than stay or if they have no rental history can be very legitimate. Can be a great person straight out of college. I just have no rental history.
Or their rental history is unverifiable because maybe they lived in Germany and they now have a job with Amazon. They’re being relocated and you’ve got documentation showing how much money—the job offer letter—they’re going to make. But you just can’t verify it. Well, it doesn’t necessarily mean they’re going to be bad. It’s just going to be a higher risk because it’s just not verifiable. And so, it’s something to take into account is, how long have people stayed at their former residences.
Steve Rosenberg: Okay, so that’s good. So basically what I hear is the three things, if I’m an investor, that I need to look for is number one, FICO score. Number two, debt-to-income ratio. What they make and how much they’re making. And then, I’m sorry, what was the last one?
Enrique Jevons: Yeah. And then number three is the rental history.
Steve Rosenberg: Rental history. Thank you. Yeah. So all of that will give you a good picture. And just as we close this out, I think it’s important to say that people realize that what you do for one you have to do for all. Basically you cannot, if you have certain rules and restrictions on FICO score, debt-to-income and rental history that’s got to be across the board. You can’t just specialize anything. And that’s where people get in trouble is they think that they’re doing someone a favor.
Like you said, honestly, I never would have thought of the military as something but you’re right. That definitely could be. Basically discriminatory practices against one set of people or in favor of a set of people so there you go.
Enrique Jevons So you can go to a restaurant and get a military discount or a senior discount, those sort of things. But when it comes to housing, housing has much more restrictions. So you’ve just got to be aware of the law. And make sure you’re not running afoul of the law.
Steve Rosenberg: Wow, that’s great. Well, Enrique if somebody wants to get ahold of you up in the Seattle area, what’s the best way to contact you, either email or phone would you say?
Enrique Jevons: Definitely email. So definitely email is always best way to reach me. So firstname.lastname@example.org. You can also just do a Google search for my name, since it’s unique enough that you’ll be able to find me that way as well.
Steve Rosenberg: Very unique. And if you want to join our Facebook group here at Mynd, it’s the Mastermynd Real Estate Investment Club on Facebook. Closed group. Lot of investors in there. I know Enrique is in there. I’m in there because we are investors and you’ll be able to actually converse, engage and have discussions with us and other very engaged investors, like-minded investors. And if you want to check out our website, mynd.co, M-Y-N-D-.C-O. Enrique, thank you so much, and I would like to say everyone, Goodbye.
Enrique Jevons: Yeah, thank you, Steve. Bye.
Choosing a tenant for a property can be quite difficult, but this does not always have to be so. There are many tools and strategies for property owners to use when searching for the best tenant for their property.
Foremost, a potential tenant’s FICO score can give an investor insight into how prompt that person is at paying their bills. Likewise, setting a standard debt-to-income ratio for a property can help make sure any future resident is actually able to afford their rent payments. And lastly, checking a future tenant’s rental history can give an investor some insight into what sort of tenant this individual may be. And while none of these tools are foolproof, they can give an owner or investor a better understanding of the individual and if they will be a good fit for the property, overall.