Selecting a Tenant

Written by Connor Swalm

Jaime: Hello, I am Jamie Swalm and I’m here with Connor Swalm and we are the hosts of the Landlord’s Resource. Brought to you by Swalm Property Property Management, where each week we educate and empower landlords just like yourself. So welcome. Connor, how you doing today?

Connor: I’m doing great today.

Jaime: All right, well we have got a very important topic for you today. So the most important thing in being a landlord is ensuring that you put the right tenant in your property and every landlord wants the same thing from the tenant. They want a tenant that pays on time, all the time and they want a tenant that maintains and takes care of their property. And finding a tenant like this and putting a tenant in the property like that is no accident. So today we’re gonna talk to you about some best practices that we use in our company to make sure that you put the best tenants in your property. Alright, you ready to get started?

Connor: I’m ready.

Jaime: Alright. Well, the first thing that we want to talk about or what are the hard criteria that we use that we suggest that you use?

Connor: Yeah. So in our selection process, we actually have two types of criteria. The first, if you fail any portion of the hard criteria, you’re automatically disqualified from running the property. It doesn’t matter anything else that is on your background or your credit. If you fail one of these criteria, then you’re not going to be allowed to rent the property from us for any reason. And then we also have soft criteria which we’ll get into later which really speak to a tenant’s credibility and their ability to rent the property well and generally just pay their rent on time. The hard criteria that we work with over at Swalm Property Management, we set the bar low so that people will not be discouraged from applying if they wanted to rent a property, but certainly keep out people that we would not want renting a property.

For instance, one of our hard criteria is having a credit score above 500. That is a pretty low standard where if someone was able to maintain a credit score of over 500, that’s a pretty easy thing to do. So we set the bar around there. You need to make at least we like to see two and a half times of the monthly rent. Now you can subsidize this with a co signer or with any type of income. We allow all income to qualify towards this number. But really, if you don’t make two and a half times monthly rent, you’d have to answer a lot of questions from us about would you really be able to afford the rent long term if it were such a large part of your monthly bills. Another one is no felony convictions, specifically relating to drugs and violence.

If you have a violent felony or a violent drug conviction, then we would not want to rent a property to you. If you a recent misdemeanor conviction for drug or violence, so we’ve seen some of those in the past, we wouldn’t like to rent a property to that person either. Typically we like with outside of three years for a misdemeanor with drugs or violence. And then the last hard criteria that we have, absolutely no evictions or judgements from previous landlords. So we actually get the entire living history of where someone has lived, their eviction history. We actually call their previous property managers up, ask them about the applicant if they lived with another property manager and really get the whole perspective. So if we see a tenant, for instance, with multiple judgements from their most recent property manager, we’re probably not going to rent to that person. They probably left under bad circumstances and the landlord was forced to try to recover some of that damage in court, which is exactly what we don’t want for our owners. So we actually check the eviction history and judgment history of all of our applicants pretty in depth.

Jaime: And I would also add, check these criteria with your local state laws if you’re not in Delaware and with your local landlord-tenant code. So there are some conversations nationally in different states where some of the things that we just talked about are potentially also becoming protected classes. And so we’re going to talk about discrimination and avoiding discrimination a little bit later in the podcast. However, avoiding discrimination by treating each person, each prospective tenant the exact same way with the exact same criteria is enormously important. So this is what we do in our state, which is the state of Delaware. If you are in a different state, just make sure that you’re aware of what your state laws allow you to do and not do, and also what your landlord-tenant code in your state allows you to do and not do.

Alright. Well the second part of the process is to make sure that you’re able to obtain accurate information about prospective tenants and it requires the best information to be able to make the best judgement on who best to rent your property to. Worse thing that you want to do is actually put a tenant in place where you did not have accurate information and then you find out after the fact that you did not have that accurate information. And that could cost enormous amount of money. And so let’s talk a little bit about how we make sure we get accurate information on every tenant that applies for one of our properties.

Connor: Yeah. One thing we never do is make our gut decision. I hear a lot of self managing owners say that, that they just meet the tenant in person and they go with their gut. That is a great way to open yourself up to liability, to get lied to and to lose a lot of money. We’ve seen that happen all the time. So we really stress, even if you don’t want to hire a management company to manage your property, at least have a professional property manager or a background screening company. Review all of your applicants so that you know you’re working with 100 percent the most accurate information and you have all of the information. We actually ran into a problem in the past with previous screening softwares that we had chosen where we weren’t getting enough information from our software. So we had a conversation with them, didn’t like their answer, and then we ended up switching to the background screening service that we use now and we have loved it ever since.

We actually get a lot more information than we typically use. We have every tool at our disposal in order to make the best decision possible. We actually don’t even meet the person until we’re moving them into the property. Everything is automated. The way we make our decision is just with the background check that we get. So we’re only looking at their credit history. We’re only looking at their income verification. We’re only looking at their eviction history and their background check. All right, so just based on those four things, we don’t go with our gut ever. We go based upon the information that we’re presented from our screening company and that prevents us from getting hit with any liability and that prevents the owner as a result, from putting a bad tenant in a property or opening themselves up to liability as well.

Jaime: And our process is very intentional. It’s designed so that it protects the prospective tenant from any discrimination. It protects the owner to ensure that only the best tenant is tenanted into the property. And it really protects us from discriminating anyway and even having to make a gut judgment. And unfortunately in our industry there are individuals who I will call professional tenants and what they will do is they will go from property to property and they know the landlord tenant code so well that they will look for owners that might not have the ability to screen to the depth that we would as a professional property management company. And they’re very good at appearing very qualified and like the perfect tenant. And so it’s very easy for an individual like that who’s practiced and experienced at it to prey on an owner that is simply trying to go with their gut. And very often that will be wrong. And so the process is enormously important. So we also, in our process, we have three questions that we always answer positively before we will move a tenant into the property. So let’s go ahead and talk about those three questions.

Connor: Yeah. So like I touched on earlier, we had the hard criteria, we just got finished going over and then we have the soft criteria and the soft criteria are an answer to these three questions that we have. The first question that we would like to answer is, is the tenant going to be responsible in maintaining the home? If we cannot confidently review this, if we can’t review the applicant’s information and confidently answer that they’re going to be responsible maintaining the home, we would not feel comfortable renting to them. Right? That’s just a great situation for the owner to the owner to get taken advantage of again and after house destroyed as a result. And lose a lot of money, so we really want to answer that question if the tenant is going to maintain the home responsibly, that not only if we have a tenant that maintains the home responsibly, not only saves us as the property managers a lot of time and a lot of energy, it saves the owners a lot of money and a lot of time and a lot of energy as well in the long run.

So definitely want to make sure attendance is going to be responsible in maintaining the home. The second question we asked, is the tenant going to pay rent and utilities on time reliably? This goes back to mainly the credit score and the amount of income. Like I said, any income that you would like to qualify you could state and then we could verify. But we really like to see over two and a half times rent. In our experience, we’ve seen, once you start to dip below that number, there are some questions about whether or not you will always be able to reliably pay rent and utilities given it’s such a large portion of your monthly bills. And that’s why we do employment verification as well with pay stubs and we actually call the employer to verify that person works there so that we can make sure that the tenant, when we put them in and the owner’s making the mortgage payments, that the owner will be able to cover them with the tenants rent.

So we always want to make sure that’s happening. The third question, the final question that we would like to answer is, is the tenant going to be respectful and responsive to their property manager? If you are a property manager, you will understand nothing is worse than a tenant that is not responsive. So either they don’t notify you of a leak or if some other maintenance issue or you can’t get in touch with them when the rent’s late or you can’t get in touch with them when you want a vendor to go over there and as a result you get charged a no show fee from your vendor. Whatever the case is, you always want to make sure you’re going to have a respectful and responsive tenant. And the same goes for us. We aspire to be respectful and responsive and professional in everything that we do at Swalm Property Management because we would like the same from our tenants.

So if we show that courtesy to the tenants, they often show that back and that’s why we try to answer that question. Normally we get the answer to that from meeting them in person at the move in and also having phone calls with them, uh, and also talking with their previous property manager to see how they handled going about living in the home with their previous property manager. If you’re ever looking to rent a property, one of the biggest things that will be for you is a recommendation from your previous property manager. We take those very seriously. Now we’ll verify it. We’ve, actually had people try to fake property managers that they lived that previously and we ended up calling their uncle or their aunt or something and their aunt gives them a recommendation as property manager. So we verify that it’s an actual property management company attached to that phone number and then we take that recommendation pretty seriously because how I can predict you’re going to act with us is exactly how you treated your previous property manager. So we always like to get recommendations from them as well.

Jaime: We call this the due diligence process and it’s very important to follow it. And in our experience, if you take the time and the effort and the energy to follow the due diligence process, the evidence of how an individual will most likely be your future tenant is there. It’s just a matter of sometimes it takes a little bit of digging to find it, but it’s enormously important. Alright, we want to move on and talk about discrimination now. So discrimination is a huge issue in the landlord-tenant environment and of course it is never appropriate under any circumstance to discriminate against any individual ever. And so that is the intent of all of the tenanting processes. It is still possible that you as a potential landlord could do everything in your power to not discriminate and actually you’re not discriminating and yet find yourself on the wrong side of a discrimination lawsuit with a disgruntled potential tenant that you perhaps did not place in your property.

And maybe even rightly so. And in a situation like that, even if let’s say in the end, you are found to be in the right, the time and the expense that it potentially takes to deal with a discrimination situation like that can be enormous. And so preventing that from occurring is of incredible importance. And it’s not difficult. It’s simply a matter of following some very specific steps each time you do it. So let’s talk about our process that we have in place to make sure that we don’t discriminate and that we are very easily able to defend ourselves or our owners against a potential discrimination process.

Connor: Yeah. So real quick. If you were in a discrimination trial, your defense was, I just chose, I trusted my gut. You’re not doing a great job. Trusting your gut is a great way to get hit with a discrimination lawsuit or any, any type of lawsuit in reality. So you really want to have a set process that you follow for every single applicant. That’s all you need for every single applicant. You follow the same process. You, you screen them all through the same criteria, you deal with the same information and you always relay that information back to the applicant. You always want to make sure that the applicant knows why you rejected them. So the only situation where you get where someone wants to sue you for discrimination is they pay all this money for an application fee. They go through all this process, they get their hopes up and then they don’t get the property and they don’t know why. So then their mind just gets to running and that could lead to any sort of place that they really want that to go. So you really want to give them the exact reason why they were not qualified to rent the property in a rejection letter which you are required to send in Delaware and we send through our screening software. You need to make note of exactly which criteria your applicant failed to meet. So we’ll actually state in our letter, maybe we don’t think you’ll pay rent and utilities on time due to a credit score of 470 and you only make two times the monthly rent. That’s a pretty good argument. That tenant might not be able to pay all rent and utilities on time reliable.

In that case, maybe the tenant had previous judgments, maybe the tenant has a lot of bad debt, credit card debt that’s piling up and we can actually see that they are 120 days late on every single debt payment that they’re supposed to be making. If they’re not paying those debts, how are they going to pay the debts that they’re going owe to us as the property managers and the owner? So you really want to follow that process down to the letter. And then in that response that we send to the applicant will say, you had $5,000 in credit card debt that was going unpaid, we don’t think that you are qualified to rent this property because you have not shown financial credibility. And so that’s what we send to all the tenants so that we can let them know and in some cases the tenants will respond and ask how they can go about fixing that.

And the answer is different every time, but we’re willing to work with them if they wanted to rent in the future. Just because they’re in a situation now, some people don’t even know that we bring up that they have. We had an applicant who had a couple thousand dollars in student loans. They had no clue they’re missing payments because they weren’t getting the letters or the emails or something like that. And when we brought that up, she handled that with the student loan servicing department and then sent us an official letter from them to prove that she was taking care of everything she needed to and then we were able to rent to her immediately because at that point we had all the confidence in her.

And also one thing that people get upset is if they apply and they’re automatically rejected. So we make sure all of our hard criteria that we talked about earlier are on our website or sent to the applicant before they apply. Our application is $35 and then I think $2.50 for processing. And so I don’t want anyone to waste that amount of money. That’s a significant amount of money and so we make sure that if an applicant is going to get rejected for those hard criteria, we tell them that before they waste that money. And we’re actually not allowed to give discounts to couples. So every single person that wants to be responsible to that lease needs to fill out their own application and we review every applicant separately. So really just informing the applicant or the prospective applicant, why or why not, they’ll be accepted or rejected is really the best way to get rid of any liability. Create the process, put it online, documented, and also circulated internally. So everyone you’re working with, your leasing agents or your property managers know exactly how to make their decisions as well and then everything is standard and by the book and there can be no discrimination because everyone is looked at through the exact same lens, which is only the information that the screening report comes back with.

Jaime: And I would say the most important part of that is create a system. And follow it the same way every time for every prospective tenant and then you know that you’ll be able to move forward in a positive way. Finding and putting the right tenant in your property is a big deal. And so I’d also add, if you’re not sure about being able to do the process, hiring a property management company to actually tenant your property but not manage your property is very inexpensive and the amount of money that it could save you in the future is simply enormous. And so I would encourage you, if you have any hesitation, then just hire a professional to tenant your property even if you want to manage that afterwards. Any final thoughts before we head up?

Connor: No, that’s pretty much it. Like I said, the most you make all of your money as an owner and as a property manager when you tenant the property well, you also lose all of your money as an owner and a property manager when you don’t tenant the property well. So if you are not confident, as he said, in your ability to tenant a property, talk with a professional. Sometimes that can be a real estate agent that works with Reynolds, a property manager, a screening company. Really make sure you have a professional process set up to screen these applicants and get them into the property or out of the property if they shouldn’t be there. So really you make all your money when you tenant it well, and this is the one place that you really don’t want to be worried about spending money doing it well because you’ll make well more money, you’ll make a lot more money down the road if you put a good tenant in the property.

Jaime: So if somebody wants to check us out, where should they check us out?

Connor: You can check us out at swalmpropertymanagement.com. We have a blog, a podcast, and a lot of content up there that you can take a look at. We have all these videos on youtube, so if you’d like to take a look at any of the other videos, we talk about everything from the eviction process to how to select a rental property that you wanted to buy if you’re an investor. So really just take a look at all of our content on youtube and on our website and let us know if you have any questions, just reach out.

Jaime: Alright, well thanks for joining us on this edition of the Landlord’s Resource and we will see you next time.