Ohio State Football Recruiting Similar to Great Tenant Selection?
“He has shown you, O mortal, what is good. And what does the LORD require of you? To act justly and to love mercy and to walk humbly with your God.”
(Micah 6:8)
“No Shoes, No Shirt, No Dice.”
Spicoli in Fast Times at Ridgemont High
Ohio State college football has been a dominant program for a long time. In the last 10 years, they have a record of 106 wins and 13 losses while winning 2 National Championships. This makes them one of the top programs in the country as they have set a standard of excellence few teams can match.
To have a perennially highly-successful football team, Ohio State has been able to get great players to come to their school; great players make great programs! But how does Ohio State determine what high school football players will actually become great college football players? What do players need to demonstrate?
Like every college football program, coaches will look at all the on-field performance measurables: how many yards, touchdowns, tackles, etc. each player had in high school. And then the physical measurables: how fast, big, agile, and strong each player is. And then there is mental aspect where players will take tests and answer questions showing off their “football IQ”.
These are all very important metrics and are heavily considered; the top recruits all grade very well on most or all of the criteria. But what gives players who measure out well in the criteria above the edge over one another? I remember reading something about that from former head coach Urban Meyer. He said that one of the most important things he looked at in recruiting was how the high school player played in the biggest games and versus nationally-ranked players in one-on-one match-ups; he was looking for what he considered true greatness. Did their performance ramp up to meet the challenge or was it pedestrian? Did most of the players noteworthy performances come against average teams or did their biggest, statistic-rich games come against the best players in the most high-profile games? Did they look forward to and excel in the most competitive situations and will their team to win? Coach Meyer believed that getting the types of players who had the ability to rachet their games up a notch was paramount to Ohio State winning national championships.
In property management, tenants are the big-time recruits! Landlords are looking for tenants who pay on time, maintain the rental homes well, and stay out of trouble. If landlords can secure great tenants, property management can be really easy! This is why great landlords spend considerable resources on tenant screening. We look at all the measurables of the “Big 4”:
- Employment & Income
- Past Landlord Reports
- Credit Check
- Criminal Background Check
Measurables tell most of the story and tenants who grade out highly in these areas can provide a solid program. But what about in situations when there are many tenants applying for one house? Who is the best one when all the measurables look good? Who is going to take care of the house? If some bad event happens, who is going to remain steady and still pay rent? Bottom line, how can great tenants be found?
These are tough questions. The right tenant roster can make or break a landlord. What to do?
I tend to pay extra attention to 2 things:
- Debt level (and the corresponding available credit): How extended is the tenant? Hard times: If there is a sudden job loss or car issue, can they absorb it?
- Past landlord reports: What did they think? Did they like the tenant or was the tenant difficult to deal with? How did the house look when they moved out? Would they rent to them again?
At the end of the day, Ohio State football and smart landlords are looking for great players. Great recruits win championships and profitably pay off rental houses. Pick wisely!
Happy Landlording!
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Is Signing Zion Williamson a Worthy Tenant Placement Strategy?
“Therefore everyone who hears these words of mine and puts them into practice is like a wise man who built his house on the rock. 25 The rain came down, the streams rose, and the winds blew and beat against that house; yet it did not fall, because it had its foundation on the rock. 26 But everyone who hears these words of mine and does not put them into practice is like a foolish man who built his house on sand. 27 The rain came down, the streams rose, and the winds blew and beat against that house, and it fell with a great crash.”
(Jesus Christ in Matthew 7:24-27)
“…(Zion) Williamson and the team quickly agreed on a five-year rookie max extension worth at least $193 million. The new deal will kick in at the start of the 2023-24 season, and the figure could rise to $231 million if Williamson makes an All-NBA team or wins a major award next season. The No. 1 overall pick in 2019, Williamson’s career has been plagued by injuries and concerns about his conditioning. He missed nearly his entire rookie season after undergoing knee surgery, was shut down early in his second season with a broken finger and did not play at all last season due to a broken foot that required surgery and did not heal as quickly as expected.
When he has been on the floor, he’s been spectacular. In his second season, when he played 61 games, he averaged 27 points, 7.2 rebounds and 3.7 assists per game while shooting 61.1 percent from the field, and was named an All-Star. All of which is why, despite his injury history, the Pelicans were eager to extend him as soon as possible. At the same time, giving $193 million to a player who has been on the court just 85 times is a risky proposition.”
(Jack Maloney in CBSSports.com 7/29/22)
As stated above by Mr. Maloney, when Zion Williamson is healthy, he is a spectacular basketball player loaded with potential. With experience, he could even be much better!
If Zion was a healthy tenant, he’d be the dream of any landlord. He’d be paying above market rent, he’d keep the place spotless, the rent would come in early each month, and there would never be any outside complaints about him. He’d maintain the property flawlessly and even take care of minor repairs on his own (and on his own dime!). His uncle would be a world-class handyman who loved to stop in and help his nephew out with some free repairs and upgrades from time-to-time. He’d kick some courtside tickets to his favorite Charlotte property manager when the Pelicans came in to play the Hornets. And, to boot, Zion would love the house and want to rent it forever.
Cash flow heaven!
But what if, as his application suggested could happen, he got hurt and lost his job? Things could start going downhill quickly for Mr. Williamson (and his landlord):
Rent? Late and not paid in full. Eviction is probably required (NBA tickets now nixed)
Repairs/Maintenance? Not up to it
Outside Complaints? The lawn guy who is not getting paid stops the service. Air filters are too expensive now. The HOA and City are up in arms and threatening fines.
His Beloved Uncle? Now that Zion is hurt again, he doesn’t seem to come around…
But Zion? He still wants to stay in the house forever!
As a property manager in Charlotte, we get rental applications from people similar to Zion. They have a lot of potential and are willing to pay top rent, but their rental screenings show that they are susceptible to bad stretches of luck (which made some of their past tenancies bad landlord experiences…). The question is: are they just isolated events in their lives or a pattern? Is Zion Williamson going to continue to miss seasons with injuries or will he turn the corner? It’s impossible to predict. The New Orleans Pelicans apparently believe he will be healthy as evidenced by them handing him a $193M guaranteed contract.
So is the high risk, high reward strategy a good or bad one? I believe it depends who the landlords are and whether they can financially handle the downside.
Example: The institutional investors who have bought up thousands of houses in Charlotte seemed to have embraced the high-risk strategy. They list their rental homes for above market rent and then accept risky tenants who are willing to pay. Does it pan out? Well, I had read something that said one of the institutional investors had a 25% eviction rate; that’s super high (bad!). It also means that 75% of their tenants were able to pay the above market rent to them monthly (good!). So spread over enough houses, the excess rent may be able to pay for the evicted houses that face no incoming rent, court costs, and needed repairs. The math could work, even in their favor(!), when factoring in that they probably have faster tenant placement times due to less stringent tenant screening.
However, we work mostly with smaller investor-landlords (the “Mom-and-Pops”), where this strategy wouldn’t work well. One bad tenant could destroy their profit for the year, let alone two of them. We need “build on the rock” tenants, not “sand” tenants, because our property management clients need them to hold up in storms. So that has been the strategy that we have used. It requires more stringent tenant screening and sometimes a longer placement time. But we will feel it is the wise strategy for our particular client base.
Zion is a great, generational basketball talent and all basketball fans want him to get healthy so they can enjoy watching him play. But not all landlords can afford to risk $193M to find out if he’ll even be on the court. Pick your tenant placement strategy accordingly!
Happy Landlording!
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Steve Martin, Roxanne & Tenant Identity Issues
In the timeless appeal of romantic comedies, one of the tried-and-true story lines is the ugly guy who tries to get the really beautiful girl who is out of his league. I was thinking of the movie, Roxanne (with Steve Martin and Daryl Hannah), and realized bringing up that reference was probably on par with bringing up Ben-Hur with Charleston Heston at this point- it’s like how long ago was that??? But humor me…
In Roxanne, Darryl Hannah is the beautiful bombshell and Steve Martin is the smitten, huge-nosed fire chief who does not feel worthy to pursue her. A much better-looking, witless firefighter expresses interest in Hannah and Martin decides to help him; he gives him romantic ideas and poetic things to say to woo her. Hannah loves it and the romance is on. Of course, the subterfuge can only work for so long until it is discovered and then… (you’ll have to get the VHS to find out the dramatic ending!). But, suffice to say, the ruse did not help either of them with their relationship with her in the aftermath.
Outside of Hollywood endings, lying about one’s identity is not typically a long term, winning strategy. And as a property manager in Charlotte, we are seeing a lot of prospective rental tenants misrepresent themselves on their applications (right now, I’m applauding myself for my diplomacy in that last statement). Okay, to be more direct, some applicants are outright lying. And this may be the worst that I’ve seen in my twenty years of screening tenants. It’s high quality “fakery”- doctored paystubs, friends as landlord references, other people’s information being offered (with better credit & criminal reports), etc.
Why? I believe it is a combination of much higher rental rates and inflation. Housing and regular living expenses cost much more and this has eroded the financials of many prospective renters; debt levels have increased, credit quality has declined, and landlord reports have less nice things to say. So, it makes it harder to have prospective tenants pass muster on screening criteria.
The thing is, at its core, good tenant application screening is designed to protect everyone (especially tenants!). I don’t know how many times I’ve given some version of this stump speech:
Listen, we want to approve you as a tenant. We easily get paid the majority of our fees to place tenants, not turn them away. But prospective tenants with similar incomes have a tough time making it work at this rental price coupled with their other monthly obligations. Then when rental payments inevitably aren’t made, it creates a bad situation for everyone: the owner doesn’t get the money, which forces us to use available avenues to secure the money, and then it creates a lot of all-around stress. No one wants that- trust me, we do not want to chase you. So, let’s avoid it and find a less expensive rental house for you.
Of course, most people don’t like to be told “no”, no matter how nicely or well-meaning the message might be. So, they try to avoid the “no” by submitting falsified information making their application appear stronger.
How do we figure out what tenant information we receive is true and what is manufactured? As President Reagan famously said, “trust, but verify.” And verify. And verify. And verify.
As landlords, we need to ask a lot of questions, especially now. Call landlords and wait to get them on the phone. Is the information the same as what is stated on the application? Call the employers and do the same. Is there a potential fraud alert on the credit application? Do the paystub calculations for taxes and deductions pass an eye test? Request bank statements to confirm the money flow.
It takes more time. And applicants do not always like the increased scrutiny- and they’ll tell you this! But there is a lot at stake. Since the CARES Act, evictions take more time and a wrong applicant can be very costly. Take the upfront time to avoid the backend headaches.
Steve Martin and his young accomplice had Daryl Hannah fooled… up to a certain point. Smart and thorough landlords need to make sure that certain point is prior to handing the keys over!
Happy Landlording!
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Who CARES About Getting a Good Tenant?
“…what we do in life… echoes in eternity.”
(Maximus (Russell Crowe) in Gladiator)
It’s been an unsettling time to be in the rental home game for the past year and a half.
Many people (including tenants) lost their jobs or had their incomes affected negatively. This made many tenants late on rent and on the verge of eviction. To stop this, politicians signed the CARES Act (which included an eviction moratorium) which has made it hard (and in some cases, illegal) to evict non-paying tenants. Without rent, landlords are forced to make payments themselves which has put them in a cash-crunch. It’s been a tough season for all involved.
No one likes evictions. Tenants, landlords, politicians, property managers- it’s failure on some level. But in the world we live in, someone has to pay and be paid for services to continue; we don’t live in utopia. So as eviction court cases pile up at the court house (evictions can be filed, just not judged and acted upon) and rent balances swell, what can be done at this point?
The CARES Act also has provided states with billions of dollars in rental assistance. This means that tenants can apply and get free rent and utility money. We’ve had tenants get up to 6 months in funds that was sent to us directly to cover past due and future rents. All the tenants needed to do was to call 211 in the Charlotte-area to be directed to the best resource based on their situation. It seems relatively simple, though with most massive programs, there were hiccups. But we’ve seen it work.
However, we also have tenants who choose not to avail themselves of these programs for whatever reason. They might not trust the government, are confused by the information asked for, or just don’t want to do the legwork needed to secure the assistance. The situation can seem hopeless and they may feel they might as well ride the process out as the media and politicians give messages that evictions will be blocked indefinitely. They might as well save (or spend) their money now and worry about their housing situation later when they are forced to.
Landlords do not want to be in a position hoping that third parties will “do the right thing” someday, while they are left holding things together on the back end.
Going forward, that has placed a greater premium on tenant screening. The bar keeps moving as we’ve never experienced a pandemic before which had whole industries in the economy largely shut down. This has affected credit scores, bad debt, and recorded evictions from normally reliable people. So what we see on paper (through credit, criminal, income, and landlord screenings) might not be indicative of future performance.
The important thing to remember is that whoever is placed into a rental house now is with you for the foreseeable future. When the eviction moratorium is lifted, there is going to be a huge backlog of cases. Getting an eviction tried and acted upon may take a really long time. Securing the right tenants takes on an added degree of importance because they will be with you for a while.
I’d proceed with placing new tenants very methodically. It might not be a good time to cut corners (“Half the security deposit? Sure, we’ll take that.”) or roll the dice on ambiguous applications for a quick tenant placement. A bad decision can last a long time and be very costly in this environment.
It is imperative to really CARE about getting a good tenant presently. Get all the information, take your time, and make an educated determination. It’s more important now than ever- tenant decisions made today can reverberate for a long time.
Happy Landlording!
Learn MoreWealthy Living Paycheck-To-Paycheck? More Pressure on Tenant Screening
When you hear the term “paycheck to paycheck” you probably think of low-income households struggling to make ends meet. That’s even the title of a new HBO documentary highlighting the plight of America’s working poor. But a new paper released at the Brookings Institution’s BPEA conference Friday finds that a sizeable number of wealthy households are living paycheck to paycheck, too.
“The Wealthy Hand-to-Mouth,” by economists at Princeton and New York University, finds that roughly one-third of American households — 38 million of them — are living a paycheck-to-paycheck existence. These are families who hold little to no liquid wealth from cash, savings or checking accounts. But a staggering two-thirds of these households are not actually poor; while they resemble poor families in their lack of liquid wealth, they own substantial holdings ($50,000, on average) in illiquid assets. Because this money is locked up in things like their houses, cars and retirement accounts, they can’t easily dip into it when times get tough.
Christopher Ingram (Washington Post 3/21/14)
When running tenant rental applications, property managers and landlords are largely looking for one thing: tenants who will pay on-time and in-full every month (while not committing felonies in between “House Damage” parties). We are looking at credit scores, criminal background checks, income, and landlord history. But is this sufficient?
Based on the article above, prospective tenants that we once thought looked great on paper may be riskier than we thought. For example, a house renting for $2K/month may draw the following applicant:
Married couple
Husband makes $96K/year
Wife stays home with 2 children
No criminal record besides 2 speeding tickets in the last 5 years
760 & 720 credit scores
Owned a home in their old town which they sold to move here for a job
They look like great candidates! But let’s dig deeper with a back-of-the-napkin calculation when we delve into their credit report and specifically, their monthly cash inflows and outflows:
$8,000.00 Salary
less taxes (approx 40%): ($3,200)
2 car payments: ($1,000)
Rent: ($2,000)
Utilities ($300)
Student loans ($200)
Private school (children) ($600)
Credit card balances ($100.00 minimum payment)
Car insurance ($250)
Food??
Activities??
Gas??
With $7,650.00+ in estimated monthly expenses, making $8K/month turns out to be tight. If something happens unexpectedly (sickness?) or job loss (just moved here for a job), this could get bad in a hurry. We know cash flow will be insufficient to cover the rent, so the question becomes how many assets do they have? And how liquid are those assets?
And then the line of questioning turns into “Do we know? Did we even ask?”
At the end of the day, the rental application can’t really devolve into a mortgage application-like colonoscopy. It’s too painful for everyone involved and takes too much time.
The good news is that a run-of-the-mill credit report is pretty thorough. The credit report screening starts with looking where cash flow is going monthly and then factoring in the other common monthly expenses (car insurance, gas, utilities, cell phones, etc.). If large credit card balances are present, it’s probably indicative that their expenses are more than their incomes. Using a back-of-the-napkin look at their income and monthly expenses (coupled with alarm bells for any large credit card balances) will give a good idea of how risky the applicants are. If there is sufficient cash flow left over each month, approve them and move on. If it looks to be too close for comfort, ask more questions. Ask for more documentation of assets. And then reject the application or ask for a bigger security deposit.
Applications are about present qualifications, but also about future vulnerabilities. Few things always go perfectly for everyone; this is real life we are talking about! And if things don’t add up, it would behoove you to get to the bottom of it as opposed to just taking the path of least resistance. High income and credit scores may not be grounds for fast track application approval anymore. Times change and we need to change with them.
Happy tenant screening!
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
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