Posts Tagged ‘selecting tenants’

Letter on Selecting Tenants

Monday, August 31st, 2009

Radio Host Mark Maxon Radio Host Mark Maxon

Below is an email that I received from someone who recently signed up for my 7-week informational course based on my book How to Start a House Fix up and Rental Business. I removed the name to protect her privacy.

It was great hearing you on Mark Maxon’s radio program this am. My son is again trying to do what you did. The first one didn’t go well. Can U tell me how U selected your tenants? Also I am in an interest only mortgage & want to get out of it. I applied for a Loan Modification & it’s been dragging on.

Any ideas? It would be greatly appreciated. Thanks again for offering your course to help folks like us.

Sincerely, xxxxx


My response:

Hi xxxxx,

Thank you for the note.

I think the hardest part of the rental house business is finding good tenants. In many ways, the only way to get good at it is to just do it. You make a few mistakes along the way, but you get better with each passing year.

But, there are also some key things you can do to help get good tenants.

1. Have the tenants fill out an information sheet, requiring them to list previous places they lived, list bank account info, job info, etc. Call all of their references, their bosses, and their old landlords. Verify their salary. You may be able to check county court cases on-line like we can here in Tucson. If so, run a check on their name.

2. Read through the entire contract with them before they sign it. Emphasize the penalties they face if they pay late.

3. Enforce the contract. If they pay late, call them immediately, and require that they pay the penalty (I charge 1% of the total rent per day that they pay late).

4. Get a book that describes landlord rights in your state. These books usually include legal forms that you can mail to bad tenants, to make them comply with your contract, or to evict them.

Sorry, I don’t have any knowledge about getting out of an interest only mortgage, or the loan modification process. There was recently a mortgage broker on Mark Maxon’s show. It might help to contact someone like him.

Best of luck to you and to your son.

Terry Sprouse
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Night of the . . . Unwanted Zombie Tenants

Tuesday, October 9th, 2007

If you are in the fixer upper rental house business like me, you want to avoid bad tenants like you would ravenous zombies.

How do you go about avoiding bad tenants?

A good contract and checking out references is a good start to getting good tenants. But, despite our best efforts to weed them out, sometimes we still wind up with a someone who doesn’t pay on time, or who bugs us incessantly with phone calls for knick-knack repairs, or who bothers the neighbors.

Below are my observations on dealing with the inevitable bad tenant.

I give my renters a $25 dollar discount if they pay on the first of the month, or early. If they pay after that, then they pay the full amount of rent. I frame it this way so that it looks like they are getting a good deal if they pay on time.

I received a late rent payment earlier this month from a tenant, but it didn’t include the full amount. I called and he said he thought the due date was the 5th and not the first. I assured him that it was indeed the first. So, if the rent if $900 a month, they pay $875 if they pay on time or before the 1st. If they are even one day late, they don’t get the discount.

What happens if they pay late and don’t pay the late fee? I call them and remind them and insist that they send me the amount they owe ASAP. I usually require a fee of 1% of the rent for each day that the rent is late. If the rent is $700 and they are ten days late, then they pay an additional $70, or $7/day.

Late Pay = More $

I had one tenant who consistently paid 2 to 3 weeks late. The first couple of times he paid late, I sent him a “pay or get out form” legal form so he would get in the habit of paying all late fees. At first, it bothered me that he paid late, but then I realized I was making an extra $150 or more each month from his inability to pay on time. I actually started enjoying getting the late payments each month. I was getting an extra $1,800 a year just because the tenant had a personality flaw that made him always pay late. Of course, if he hadn’t pay the fee, I would have removed him from the house. In general, its best to get the rent on time, but there are times when one should be open and flexible enough to make a little extra money.

Do Tenants Stay or Go?

Granted, when you are renting out several properties at the same time, it can be headache if one tenant is paying late. You have to ask yourself, would you rather remove the tenant and go through the process of fixing up the property and searching for a new tenant, or just continue to rent it out under less than ideal conditions? Since my wife and I both have regular jobs, we usually opt to keep the tenant in the house as long as possible, unless they are not taking care of the property or not paying the rent. We subscribe to the landlord mantra of “the less turnover, the better”.

In a perfect world, all tenants would pay on time and stay in the property for 15-20 years. We’re still looking for that Ned Flanders-esque tenant.

As you might expect, the late-paying tenant left the house without paying the last month’s rent, last April. However, he rented the house for about 18 months, so with the security/clean up deposit that I kept, and all the late fees we received, we still came out well ahead.

You can usually see the signs that certain people are going to be “train-wreck” tenants. When they start off paying late right at the beginning of their lease, you know that’s not a good sign. But, at that point all you can do is stay on top of the situation and enforce the late payment rule until their inevitable departure. After the late-payer tenant left, I started using month-to-month rental contracts, which makes it a little easier to get rid of bad tenants.

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