Today’s REI Classroom Lesson

Today, Pete Neubig talks to us about how much harder it is to get a problem tenant out of a property once they’ve moved in and red flags to watch out for when placing a tenant.

REI Classroom Summary

During the application process, there are some clear red flags to look out for, including tenants who will take a property “as-is” or those who have payment issues.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Mike: Welcome back to the Flipnerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Pete: Hi. My name is Pete Neubig, co-founder of Empire Industries Property Management located in Houston, Texas and I’ll be the host of your REI Classroom. Today’s topic we’re going to talk about signs of a problem tenant.
Mike: This show is sponsored by passiverental.com.
Pete: So when you’re renting your property out, once you get that tenant in and they have a problem, you’re like, “Aw, man.” It makes life as a landlord much more difficult once that problem tenant is in your property. So what are some signs that we can look for to deter or to not rent to these potential problem residents?
So from our 15 years’ experience of managing properties and owning investment properties, these are my top tips. So first thing is they’ll take the property as-is. So I remember back when I first started managing properties, actually owning properties, I had these properties, the make ready wasn’t done, the place was dirty, there was still trash in the place, and these people would be like, “The property’s great as-is. I’ll take it.” Well, what we found is when we gave those people as-is, they ended up being the ones that we typically had to evict within a couple of months. So that is your first tip. If they take it as-is and it’s not in great condition, it’s in bad condition, that is a red flag.
The next one is they try to negotiate their services. So a tenant that comes in and says, “Hey, if I paint this wall, can I get this money off my rent?” or, “Hey, I’m a handyman. So I’m going to do some work and if I do work on the house, can I get rent off?” The challenge with this one is that each time they do something, which they stop calling you and they just do it, and they just send you their bill in the mail or they don’t pay you the full amount of rent, with some type of invoice for Home Depot, Lowe’s and then they tack on some of their time that their doing something.
Most of the time the work that they’re doing is actually really poor. And on top of that, you don’t want to be held hostage where somebody’s paying you less than what they’re supposed to be paying you, not getting stuff approved by you, and just feel like they can go ahead and do some work and then lower the rent. So they try to negotiate services for fees. That is a red flag on a potential problem tenant.
The next one is, they can’t get the money the day they say they’re going to have the money. So, “Hey, Mr. Owner, I will go ahead and pay you the security deposit and the first month’s rent on Thursday.” Well, then Thursday comes around, “Hey I don’t really have the money. I’ll pay it to you. I get paid on Friday. I’ll pay it to you on Saturday.” And so what happens here is that they obviously don’t have enough money to pay for the property. And typically they can’t afford the property. These are people that you are going to evict over a period of time.
The next one is, they don’t have a bank account. They have to pay you with a money order because they don’t have a bank account. In this day and age, if somebody does not have a bank account, typically that is a red flag that it’s going to be a problem resident. Here at Empire we ask all of our tenants to pay online. That online is through ACH where it’s paid right from a bank account. So if they don’t have a bank account, they can’t pay us online, we charge them extra money for a money order. But typically we want them to have a bank account. Typically those people, they’re running their lives so poorly that they can’t get a checking account.
Another one is they don’t have a credit card. Most people have credit cards these days. So if they don’t have a credit card . . . And how do you know if they have a credit card or not? Well, we take our applications using a credit card. Not check or money order. So if they don’t have a credit card, those are typically people that you do not want to do business with, meaning that they couldn’t even get a credit card, they don’t have a bank account, these are people that are potentially red flags.

Also if they want to pay cash. “Hey, Mr. Owner, let me move in today and I’ll pay you cash.” Quick move-ins, cash, no credit cards, these are all red flags.
They don’t know how to fill out an application online. So if you have an online process for filling out an application and in this day and age they can’t figure out how to fill out the application online. Now, granted, there are exceptions to every rule, like the 80-year-old or the 70-year-old grandmother not able to fill out the application online, needs some help. We get that. But your standard person, if they are not tech savvy enough to fill out an application online, that is a potential problem that we are seeing.
Here’s another one. They ask you stupid questions that are already in the ad. These are people who are probably not very intelligent and they are going to cause you problems down the road. I don’t know how many times I put an ad out, I put everything in there and I get phone calls that people keep asking everything, I’m like, “It’s in the ad, it’s in the ad, it’s in the ad.” No attention to detail. They’re not reading, or maybe they don’t even know how to read. But we are seeing those are red flags for potential folks.
Here’s a great one. They call you. They leave you a voice mail, “I’m interested in your property on 123 Elm.’ They leave you a voice mail and you literally call 30 seconds back and you get the phone is no longer in service. Did you really call me at the last 15 seconds on your phone plan? So if they can’t keep a phone on or they go over their minutes all the time and their phone gets shut off, probably somebody that’s not stable enough to pay you rent.
Or they nit-pick the property to pieces. They look at the property and they’ll say the property is in good condition. It’s in rent-ready move in condition and they’re sending you a list of 25 items that they want done before they move in. This is just the beginning of a long battle with all the maintenance repairs that are coming your way.
Or people that want to move in ASAP. These are people that have most likely been evicted and they are trying to get into a property before the eviction hits their record. Now obviously there are exceptions to the rule. That’s a reason why they need expedite. We do expedited move-ins, but we charge for that. And we really review those applications very thoroughly because we don’t want somebody that’s moving in just because they’re trying to get out of a bad situation somewhere else before it hits their report.
And of course the last one here is their credit score is low. If they have a low credit score, it doesn’t mean that you don’t take them, but it is a red flag. And you have to find out why is it low. Is it low because they’re not paying bills due to medical bills? Or is it low because they’re not paying previous the landlords or they’re not paying their AT&T bill, maybe because they called with the last 15 seconds on their plan. But why is their credit score low? Typically people with low credit scores do not care about their credit, so they will punch out or not pay you and move out, skip on you because they don’t really care about their credit as much.
This is Pete Neubig with Empire Industries Property Management for the REI Classroom and this has been signs of a problem tenant.
Mike: Passiverental.com is your source for turnkey, done for you rental properties. If you’d like to be an investor and not a landlord, please visit passiverental.com to learn how to purchase cash-flowing, professionally-managed rental properties in the hottest rental markets across the country. We can also help connect with financing for your next property. Invest the easy way today and get started by visiting passiverental.com.
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Pete Neubig
Pete Neubig co-founder of Empire Industries Property Management in Houston TX. Pete serves on many property management committees and holds a property management designation from the National Association of Residential Property Managers.