EP211: Do THESE to Avoid NIGHTMARE tenants

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Hi there…

The one thing that all types of landlords and property owners can probably agree on is this:

Bad tenants are the WORST. 😖

No one needs the stress, drama, or financial issues that come from terrible tenants!

So, we’re going to share our favorite tenant-screening tips to make sure you can spot those pesky red flags a mile away!

There are plenty of reasons why a tenant may not be a good fit to reside in your property, but most of them can be spotted in the screening process. 

That is, if you have a thorough system in place. 

To make sure a person can fulfill their end of the deal – pay rent on time, treat the property and neighbors well, stick to the lease agreement – you’ll want to know lots about them. 

Which is why we use these 6, non-negotiable tenant-screening tactics for our own properties! 🙌

And honestly, if tenant screening is NOT something you enjoy, we can help you with that, too.

You see, there’s a better, simpler way to grow wealth in real estate, that doesn’t involve dealing with aaaany tenant drama on your part! 

If you’re sick of landlord duties…you’re in the right place. 

Perhaps passively investing in multifamily apartments is more up your alley. 🤩👇

Whether you want to upgrade your screening process or ditch it altogether, we’ve got you covered.

Here’s to never dealing with terrible tenants again!🥂

👉 Picture this: You’ve poured your blood, sweat, and hard-earned money into acquiring and revamping a property.

You excitedly lease it out, only to quickly realize you’ve made a grave mistake.

Almost immediately, your tenant starts incessantly griping about trivial issues.

When rent day arrives, they conjure up a laundry list of 1001 excuses for their inability to pay.

To make matters worse, they’re letting unauthorized individuals run amok on your property, and to top it off, your property resides in the unforgiving landscape of California, where losing your property to the bank seems more likely than ever before you can even think of evicting these freeloading tenants.

Chilling, isn’t it?

Whether you’re a seasoned landlord or just starting, these nightmares can become your reality if you fail to spot the glaring red flags in advance.  😵😵

In this episode, we’ll unravel strategies for screening potential tenants.

And at the end, we’ll share with you alternative real estate investment approaches that can reduce the risks of encountering these red flag situations.

Source:  The Kitti Sisters TV

Speaking of red flags, let us hit you with an incredible story. 

A few years back, we found ourselves on a dream vacation in Cancun, Mexico 🇲🇽🪅, alongside some close friends. It was a picture-perfect scene – flawless weather, a refreshing breeze, and exotic beverages to boot. We were so caught up in the sheer magic of it all that we completely missed the ominous warning flags planted along the beach right in front of our hotel.

Our adventure began innocently enough, with us standing knee-deep in the inviting waters.

But in mere moments, things took a terrifying turn. 😫😫

We were swiftly carried out to sea by the rip tides, to a point where we couldn’t even keep our heads above the unforgiving waves.  🌊

It was a heart-pounding, near-death encounter, and to this day, I can’t quite explain what pulled us from the brink of disaster.

Suddenly, as if guided by some unseen force, not only did we survive, but two of our friends were miraculously by our side, all of us resting on a sandbar. 

It was an extraordinary intervention of some kind, because without it, we might not be here today, sharing this jaw-dropping story with you.

And that leads us to our first point, there are certain red flags when it comes to tenants that you can’t avoid ⏬

🚩 NO. 1 Credit Score and Credit Report: 

A 740 credit score or higher is generally a green light, but it’s essential to delve deeper into the credit report itself. This report reveals their track record when it comes to paying bills on time.

Scrutinize their credit history for late payments, past-due credit cards, medical bills, car payments, or a mortgage. Anything they owe will appear here, giving you invaluable insights into their financial responsibility.

Pay close attention to how leveraged they are. If all their credit cards are maxed out, that’s a telltale sign of financial recklessness – something you definitely want to know before entrusting them with your property.

🚩 NO. 2 Foreclosure History: 

If they weathered a foreclosure consider it a red flag, though this may be mitigated if it occurred a while ago, for incidence back in 2008, 2009, 2010, etc.

🚩 NO. 3 Late Payments and Judgments: 

A consistent history of missing payments is a major red flag. It’s a clear indicator of their financial responsibility or lack thereof.

If there are any judgments against them for unpaid debts, it’s often a deal-breaker. Plenty of prospective tenants with pristine credit scores are searching for a place – you don’t need to take unnecessary risks.

🚩 NO. 4 Unreported Cash Income and Bank Statements: 

Unreported cash income can be a tricky area. Request their bank statements to gauge the flow of money in and out of their account over the past two to three months.

Cash income often varies widely from month to month. Even if they’re depositing a substantial amount, consider the sustainability of this income source. 

What happens if they hit a few lean months and can’t make those deposits?

🚩 NO. 5 Verifying Rental Application Accuracy: 

Here’s a golden rule: Trust, but verify. 😵😵

When you’re sifting through their rental application, ensure that every piece of information adds up.

Here’s how you can do it:  Contact their former landlord, don’t just assume you’ve reached the right person. Dig a bit deeper and cross-check details to be absolutely certain.

Don’t underestimate the sly tactics some applicants use – they might provide you with their buddy’s number, pretending it’s their landlord.

Always double-check.  🙌

Now, when it comes to those all-important check stubs, don’t take them at face value. Go the extra mile and call their employers for confirmation.

Oh, and let’s not forget the power of a simple Google search. Make sure that the contact number they’ve given you, belongs to a legitimate employer and not just their pals Mikey or their cousin Sal.

🚩 NO. 6 The Income-to-Rental Ratio: 

Here’s a fundamental principle: The tenant’s household income should ideally be at least three times the monthly rental rate. Let me break it down for you – if they’re leasing a sweet $2,000 home, you’d want them to pull in a minimum of $6,000 each month. This isn’t up for negotiation in our book.

Why?

Because it’s all about ensuring that your tenant has the financial muscle to meet their rent obligations comfortably, without teetering on the edge.

If you disregard this, you might find yourself tangled in collection headaches down the road. So, keep that income-to-rental ratio firmly in mind when screening potential tenants.

Alternative, the easy way

As you navigate the maze of red flags we’ve uncovered, it’s perfectly normal to start feeling a bit overwhelmed.

You might be thinking, “Is this landlord gig turning into more work than I signed up for?”

Well, my friend, we’ve got some good news – there’s an easier way to avoid all this complex screening and vetting while still building your long-term wealth.

Let us give you a glimpse into our world: We’re proud owners of 5,000+ units in multifamily apartments 🏢. And guess what? We’ve never had to dive into the nitty-gritty of tenant screening ourselves. 

Why, you ask? It’s simple. We want a better life with more free time and less work, not a second job. We’re doing this for a more enjoyable lifestyle, not for more stress.

With our multifamily apartments, our expert team handles all the screening on our behalf. We haven’t laid eyes on a rental application, handled a rent check, or even needed to know the ins and outs of eviction procedures. Those tasks aren’t our responsibility, and we’ve got a team of experts to handle them.

Now, let’s talk about the screening we do engage in – but it’s a breeze compared to the tenant red flags we’ve discussed earlier. Multifamily apartment investing isn’t a one-size-fits-all venture; not all apartments are created equal.

Here’s a peek at what we look for before pulling the trigger on a property 👇:

✔️ Grade-A Apartments:

We’re talking about properties that are either brand new or as good as new, think late 2010s construction.

✔️ High-Income Tenant Base:

We seek locations where the tenants boast a substantial annual income. For instance, our last three properties had a median income within a one-mile radius of $100,000 or more.

✔️ Desirable Area:

The property has to be in an area with high demand and limited competition from newly constructed properties.

✔️ Thriving Job Market:

We look for areas with an abundance of high-paying job opportunities.

✔️ Landlord-Friendly Locale:

We make sure the city or state is landlord and business-friendly. We’ve heard nightmarish stories of landlords in cities like NYC or LA who ended up homeless due to non-paying tenants. 

✔️ Favorable Loan Terms:

The property’s loan terms must align with our business plan and investment strategy.

Now that you understand that in the world of real estate, the potential for success is enormous, but only if you’re savvy enough to steer clear of those major red flags that could derail your financial aspirations.  Tune in to this episode on putting together your Dream team.

Source:  Freddie Mac [Annual Supply as a % of Current Inventory and YoY Rent Growth]

According to Freddie Mac’s Multifamily 2024 Outlook, cities like Salt Lake City, Nashville (Tennessee), Austin (Texas), Charlotte (North Carolina), and Colorado Springs (Colorado) are expected to see a lot of new property development, with each city having more than a 5.5% increase in new housing.

➡️ Conversely, cities like Tulsa (Oklahoma), Rochester (New York), Long Island (New York), Syracuse (New York), and New Orleans are predicted to have very little new property development, each with less than a 0.4% increase in new housing.

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