Tenant Management – Iron Fist & Velvet Glove

There are a couple of different types of real estate niches that would have you with tenants. One would be long-term buys and holds, in which you buy property and put tenants in them. The other would be when you are buying properties subject-to.

I’m going to give you a chance to  learn from my mistakes. I’ve made them all with tenants, unfortunately. When I was a newbie, I bought a lot of houses subject-to… I still have most of them, and am slowly selling off some of them. (the ones I should NOT have bought!)

First off, you want to do your homework when you are screening or you’ll regret it. When we sell subject-to, we buy the house subject to the mortgage. Somebody signs you over the house, and you own it… no money down, no credit check!

They literally give you the house. You can live in it, or rent it out…. but, make sure that you know your exit strategy before you enter the deal or you’ll regret it.  The exit strategy is usually to lease with an option to buy, or Rent to Own deal.  When you put this sort of tenant in there, they will give you a lump sum of cash up front to move in. It’s usually a nice bump up front, and gives you some $ to work with.

Don’t just charge them a security deposit, you’ll get a “option fee”. You want to get at least $4,000 or $5,000 from these folks as an option deposit, up front. This gives them the right to buy the property at any time. Basically, they are paying that up front to lock themselves in at that time, at that price. It gives them just that, an “option” to buy.

Sometimes, it’s tempting to take the person with the highest option deposit. without screening much. Don’t do it! Let’s say you have two people interested, and one of them has $7,000 to put down with terrible credit, but  swear that they will pay their rent.

The other one only has $4,000 but has a spotless record. You might want to consider taking the person with the $4,000 over the $7,000  because that other $3,000 could be eaten up pretty fast with attorney fees, court fees, and a lack of mortgage payments if you have a deadbeat living in your home.  (and rent payments in they default)

There are several different websites to choose from where you can get  background information on future tenants before you have them in your property. The site that I use asks me to enter their name, last 2 or 3 places that they have lived, and social security number.

Within a minute or three, I can find out if they have ever been evicted or have gone to court for lack of making payments. I have had people that I have run through website, and it would show that they have been evicted 3-4-5 times within ONE year. Screen your tenants.

You can also have a criminal background or retail credit check done as well. Please note that most tenants have bad credit. That’s why they are renting from you. They either don’t have a lot of money or have bad credit.

You should also call and talk to their last landlord. One simple trick I use is this… If their old rent was $625 a month, I would call the old landlord and purposely give them a wrong dollar amount. I will tell them that I had a tenant of yours apply to rent a property of mine. I will tell them that they said they paid $725 month in rent. Then I will ask if that is correct. I want that landlord to come back to me and say, “No, they are paying $625 a month for rent”. (so I know if they lied to me)

I am doing that because I don’t know if they are really renting a house from these people. How do I know it’s not their sister? I might even screw up the address a little purposely too. I want to see that they know some things that they might have forgotten to tell their sister when they set her up to do this.

You also want to verify their employment. If they say they are working somewhere, call there!

Another trick I use is to leave a piece of paper out of your screening, or forget something on purpose. Come up with some reason to drop by where they are living now, to talk to them. You want to make sure they really live there. More importantly, you want to see the condition of that property. I can guarantee you that within 2 weeks, whatever condition their current place is, yours will look the same.

I have had people take a perfect house with new carpeting, painting, and everything clean and have had them turn it into a wreck in 6 weeks time.  I mean so much urine in the carpets it molded the walls mess… yes I’m serious!

One tenant left 2 to 3 feet of stuff on the floors in every room.  A neighbor told me they had around 12 cats and dogs, and a whole bunch of rabbits The carpets were drenched and it took me several tries to find a company to come clean it… and they wore haz-mat suits to do it!

Also, don’t disappear after they move in. Drop by to say hello every now and then. Your contract should let you inspect the house whenever you want to, with advance notice. You might get a really good tenant that pays on time and you think they are sweethearts, but your home may be trashed. Please, go check it out, never trust they’ll take care of your property like YOU would!

Also, be careful and not discriminate or ask how old they are. You can ask if they are over 21, but can’t discriminate due to age, sex, race, or religion.

Also, be tough on people, especially at first. Some are pro’s at not paying their rent. They know the loopholes and the system. If it gets to be the 5th of the month and you don’t have  rent, they should get a eviction notice on the 6th. I know this because I was dumb and kind with my first tenant.  I fell for her lies, trying to “be nice”.

The first few months were good, but she was a mortgage broker, but when the mortgage industry fell apart, so did she. She would call and tell me about her problems and I would tell her how thankful I was that she was trying, etc. Before I knew it the 1st came, the 15th came, and she was suddenly months behind and I was Mr. Nice Guy, falling for her stories and lies.

Now, I tell people up front that if they make their payment on time, they will love me. I also tell them if they don’t pay their rent, they will hate me and  fast.  I want to intimidate them a little bit.

It’s a game with some of these folks, so you have to let them know you mean business. It will save you a lot of trouble in the end. I have spent many sleepless nights wondering how  I’m going to get sometenants out of my houses… take my word on it, you can’t be flexible at 1st, or you’ll get taken advantage of.

On another note, reward the  good tenants. At Christmas,  give them a $50 gift certificate or something, or even  see what type of improvements you can make for them?

My theory is,”have an iron fist, but wear a velvet glove”! Be firm, yet fair.,.

If you have a 3 bedroom house with no ceiling fans in those bedrooms,  tell them you are going to install some fans for them or something.  They will love you for it. And if they love you, their chances of renewing that lease will increase! You want to keep the “good ones” as your tenants as long as possible!  Good Luck, and happy landlording!

3 Responses to “Tenant Management – Iron Fist & Velvet Glove”

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