How To Keep Bad Tenants Out Of Your House
Hey everyone, Spencer Sutton here with gkhouses. Today we are going to talk about how to keep bad tenants out of your house.
If you have owned rental property of any kind for very long, you have probably experienced a bad tenant.
I started buying rental houses back in 2005. I believe the very first rental houses I bought was a package of 10 houses, and I really did not do a lot of research on these houses. I saw some leases, but I did not look at a ledger or look at the pay history. I also did not ask about security deposits.
I had been buying and selling houses since 2003, flipping wholesale houses, and then we got the opportunity to buy this 10-house package, and I jumped on it.
My Very First Bad Experience With A Bad Tenant:
So, my very first experience with a bad tenant was a little terrifying for me.
They were low to moderate income areas in Birmingham Alabama, and my tenant story involves going to collect rent for the very first time. I drove up to the house, took a couple of steps toward the house and saw there were two pit bulls chained up to the porch. I saw they were chained so they could not come at me, but after noticing them I turned around, got in my car, and mailed a letter to the tenants.
Now, fortunately for me, these tenants moved out. But that is not the last bad tenant I’ve had.
When I have done things myself, I didn’t really have a system, if I had a rental house I would put something out in the newspapers, remember it was 2005, and do field calls.
I would go out and show the house to future tenants, and if you have ever done that you know how frustrating it can be. You spend all day in this house and people don’t show up. It’s exhausting.
When things do not go as planned, you get frustrated, and because of the frustration there is a tendency to relax a little bit on the screening criteria.
I have done that several times, and each time it does not work out well for me.
How to keep bad tenants out of your house
Here at gkhouses, this is one of the most important parts of the job. We are very disciplined in our underwriting process and our screening process.
When we have clients that bring us houses, we want to do everything possible to find the best tenant, and then once we find the best tenant we want to keep them in that house as long as possible.
The goal for you as an owner, me as an investor, is to have a tenant that stays as long as we want them to. We want this because when you have a tenant that moves in and then moves out after a year, maybe two, that type of turnover costs more money for you.
When a tenant moves out you have to go in and fix up a few things. You will probably have to paint, clean carpets, and fix more things that will come out of your pocket. The goal is to keep that tenant in the property as long as you can.
I currently have a tenant that’s been in one of my houses for 10 years. I also had a tenant in one property for nine years, they just moved out a few months ago. To keep these tenant for so long all I did was regular maintenance here and there. Nothing big, nothing major.
Now, when somebody’s lived there for 9 or 10 years and they move out, you better believe you’ve got stuff to do. So be prepared for that. Now let’s focus on how to keep bad tenants out of your house.
Four different screening criteria that you should use in your underwriting
Income (How To Keep Bad Tenants Out Of Your House)
Number one is making sure they have the right amount of income.
For us at gkhouses, we prefer that tenants make at least three times as much as the rent is per month.
For example, if rent is $1,000, tenants need to be making at least $3,000.
Some people may ask, “Well, is that gross or is that net?” That’s really up to you. We found gross to be a perfectly fine threshold for us in renting out houses.
If they make three times gross what rent is, we feel good about that.
Tenant References (How To Keep Bad Tenants Out Of Your House)
The second point is checking tenant references. So, just like somebody who is applying for a job to come work for you, you want to check out their references.
For a tenant who is going to move in your house, you want to check past landlord references, not friends and family.
More than likely they have lived or rented a house somewhere before, so it’s important that you get a list of those names and companies. You are going to want to call and ask questions like, “If you could rent to this tenant again, would you? Why or why not?” Try to avoid leading questions where you steer the conversation a certain direction.
If you feel kinda suspicious, like maybe the references are not real companies but potentially a cousin or friend, then you may want to dig a little bit deeper.
Another way to check references is by taking advantage of the social media world we live in. Check social media profiles and get a sense of their personality and other characteristics about them.
Background Check (How To Keep Bad Tenants Out Of Your House)
The third point is, doing a background check and this is very important.
The following three points are the things gkhouses looks for when doing a background check.
- No violent felonies
- No felonies within the past 10 years
- No history of multiple misdemeanors
These are all very, very important and should help you in your screening criteria.
If you want to be careful with your underwriting, which I am sure you do, then follow these guidelines and don’t deviate. It does not matter what the tenant’s story is or what you hear about why something is on their record.
You need to be very, very objective, which is what we do very well. This is a business for us, and for our clients. It’s very important, so we take all the emotion out of it to make the best decision.
No Evictions (How To Keep Bad Tenants Out Of Your House)
Now, the fourth point is no evictions. This point is very, very important.
We have had people come in our office and say, “Hey, listen, I went through a really hard time, didn’t have any money, lost my job,” which is totally understandable. These things can happen to anyone. And they say, “I was evicted out of my house during that period where I lost my job. I couldn’t pay rent. But that was five years ago, back on my feet, got good tenant references, have a good income.”
With those types of situations, we say no. We stand by our tenants having no evictions whatsoever.
We know how difficult it is to go through an eviction, and we don’t want that to even be a possibility for any of our owners.
If you had an eviction, we are sorry about that, and there are other companies and individual landlords that may be able to work with you.
Those are the four things that you need to look out for when screening tenants.
We are not saying that tenants who have any of these qualities are bad people. These things can happen to anyone. We are just looking to avoid people who are trying to take advantage of the fact that you have a house for rent.
There are all kinds of things you need to look for in a tenant. I could tell you story after story about many different bad tenants, but I won’t bore you.
Follow those four principles and you will be much happier and much better off. No matter how many applications it takes you to get that good tenant, it will all be worth it.
Thank you for watching! See you next time!