Credit Reports (YAWN) & COVID Tenant Placement
“Everyone has a plan until they get punched in the mouth.”
“Iron” Mike Tyson
The “sleep industry” (from bedding, sound control, “sleep consultants”, prescription pills, etc.) is estimated to be a $30B-$40B annual business growing by 8% year. That’s a lot of money going to something that should naturally be free; and, unfortunately, the inability to sleep seems to be an issue that keeps growing.
My father told me that a solution that always worked for him was to read textbooks. It made sense, but most adults (thankfully!) don’t have many lying around. However, if you’re in the property management arena, you do have a lot of credit reports you can read through that will have the same effect.
On a single rental application, it is possible to have 20+ pages per person. Every open and closed line of credit they’ve ever had in their lives is listed. It can be painful reading and sorting through them as the pages can begin to just run together…
Many property management companies outsource the application process. I get it! No one wants to read through the reports and try to put together how someone’s finances link to whether they’ll be a good tenant, especially when 10-20 applications are coming in per property. It’s arduous. That’s why it’s common for property management companies to have credit score minimums- for example, if you don’t have a minimum 600 credit score, your application will automatically denied.
There are a couple problems with that approach, in my opinion. The first is that if every landlord did that, there would be a lot of people in the streets who weren’t eligible to rent a house. That seems harsh, unfair, and inhumane.
The second is that a credit score alone is insufficient to gauge an applicant’s true financial strength. I think the level of debt to how much available credit they have is a huge indicator. A credit score rewards taking on debt to a certain extent as it measures whether debt payments are being made in a timely fashion; people with no debt (or utilized available credit) seem to have lower credit scores because there is less of a payment track record to go off of. Should people be penalized for that? I guess I have an “old-school” mindset where I think not having debt is preferable to the alternative.
Thirdly, I like to see cash flow and where it is going. I’ve had 700+ credit score applicants who have so much debt to pay off that after their monthly debt obligations (aka credit cards, financed cars, etc.) there is little room to pay rent and other niceties of life (like food).
This is where COVID and tenant placement comes in. How strong is the applicant? Can they pay when times are good and bad? Can applicants take a financial punch? COVID is a huge punch to almost everyone. But even putting COVID aside, a punch could be an unexpected job loss, big car repair, or some other major expense that life throws at everyone at some point. Can it be weathered?
That’s where I find the credit report to be an invaluable tool and a “must-read”. I always felt that the #1 responsibility of property managers is to keep the rents flowing to the owners. And property managers are only as good as the bench of good-paying tenants they have in their properties. How strong is the bench? Can it handle adversity?
COVID has and will continue to put things to the test. I think the practice of pouring that extra cup of coffee while poring over the credit reports will prove to be time well spent.
Happy Landlording! And Stay Safe!
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Tenant Management: Be Nice Until…
“A brother wronged is more unyielding than a fortified city; disputes are like the barred gates of a citadel.”
Proverbs 18:19
“I want you to be nice… Until it’s time not to be nice.”
Patrick Swayze to the other bouncers in Road House
There’s a danger of showing your age when quoting lines from the classic movie, Road House. Younger people have no idea what you’re talking about. It’s not as bad as making a “Rosebud” reference from Citizen Kane (1941), but it can make you feel like you’re in the same ballpark sometimes.
For the uninitiated, Road House is about a bouncer (Patrick Swayze) who is hired to go to a small, backwoods town in Missouri where some local ruffians are ruining a local bar by making it a warzone for fights. His job is to restore peace by training the staff to deescalate the increasing violence.
His first training session with the bouncers starts with him giving them the advice of “be nice”. No matter what bar patrons say to them, they shouldn’t take it personally. It’s a job. He instructs them not to retaliate, but walk offenders out of the bar, nicely. They should be nice, until it’s time not to be nice.
The inevitable question he gets after this speech is “how do we know when it’s time not to be nice?” He answers succinctly, “You don’t. I’ll let you know.”
As a Charlotte property manager, we often run into the same question. This may come as news, but tenants don’t always follow the lease to the T. They want to do what they want to do, regardless of what they signed their name to. This can be frustrating. And it can lead to the impulse to escalate situations quickly by invoking phrases like “throw you out on the street”, “it’s eviction time”, and “you’ll never live indoors again when your next potential landlords ask me for a reference”.
That’s not nice. And it’s usually foolish.
In my experience, nicely asking tenants to do something differently is effective. For example, if they are leaving the trash cans out for days which elicit HOA complaints, we may ask, “Would you mind trying to get the trash cans in a little earlier so we can be compliant with the HOA rules? I wouldn’t want them to start sending fines.” Or “can you try to make your rental payment a little earlier? The owner needs to be able to pay his mortgage on time and it would also save you from donating late fees to us every month. You’re usually only off by a few days.”
Most tenants are reasonable and respond well to landlords who ask for things nicely. I feel as a property manager, one of our most important jobs is to establish a respectful relationship with the tenants who rent from us. We both need things from each other and it’s much better for all involved when the relationship is cordial.
However, when a landlord is repeatedly ignored or there are egregious violations, it may be time not to be nice. This is when court action may be necessary, but it rarely leads to a happy ending. Remember, the tenant and his/her family are losing the place where they live and sleep; in Charlotte, at least, it’s going to be difficult for them to find another house easily due to the lack of available housing and a recent eviction on their credit. They are in a really bad situation that they will probably blame the landlord for.
At this point, the relationship in most cases is irrevocably broken. The chances of receiving additional rent are low and the house is usually returned in horrible shape. It’s a true “lose-lose” transaction.
It’s actually the same ending as in Road House. When it was time for Swayze and his fellow bouncers not to be nice, it infuriated the bad guys and a civil war broke out in the town. A lot of people got hurt (including Swayze’s best buddy, Sam Elliot, who was killed) and a lot of property was destroyed. In the end, Swayze got his Pyrrhic victory which, outside of movie logic, would only be considered a complete disaster.
So, be nice and try to keep things nice as long as it depends on you! It’s much better than having to turn to the alternative.
Happy Landlording!
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