REAL TALK RENTALS
Episode 4: How Do You Find the Right Tenants
In this episode, we're going to be talking about tenants. How do you find the best tenants for your property and what goes into that and what are the pitfalls to avoid? What criteria do property management companies use to look for a tenant? We also dive into Fair Housing, which is one of the most important aspects of renting out a property. You have to know it and abide by it, there are no exceptions!
This episode covers:
-The Application Process
-The Right Way to Market a Property
-Things You Can't Ask a Renter
How Do You Find the Right Tenant
BEN BAILEY: Coming up on today's episode of Real Talk Rentals, we're going to talk tenants. How do you find the right tenant for your property? Welcome back to Real Talk Rentals, a podcast brought to you by on cue Property Management, where we talk about all the tips, secrets and behind the scenes that goes into owning your own rental property. I'm your host, Ben, and with me, as always, is my co-host, Eric Dixon, the go to expert on all things property management and rentals. And in this episode, we're going to be talking about tenants. How do you find the best tenants for your property and what goes into that and what are the pitfalls to avoid? So we'll jump right into it and say, Eric. Property management companies. What criteria do they use to look for a tenant?
ERIC DIXON: Yeah, so it's going to vary by company and this goes to the self managing people as well. So as a kind of a these are the tips and tricks if you are self managing of things maybe to do that you're not doing now or what your property management company should be doing, just going through kind of the list. And this is not by importance necessarily, but it's big. The big thing. So number one is credit history. So there's the FICO score, but it's also the payment history. As everybody knows, credit is kind of silly. It's like the more you borrow, the better your score could be as long as you're paying on time. So we have applicants all the time that they don't have great credit, but it doesn't necessarily mean it's bad. They just haven't built it. So if you're 18 to 25, maybe you've been a student, you've never borrowed to buy a house or a car or something, you know, it can be interesting. So credit's number one and you'll have different thresholds, whether it's minimum 500, minimum five, 50, minimum 600, whatever it is. One thing we try to keep in mind with minimum credit scores is you can get a mortgage for with a 600 or a 620 credit score on the low end. And we have some owners that are like, Oh, I need a 700 to rent my house.
ERIC DIXON: And I'm like, Look, man, they can go get a mortgage with six 2640, you know? And so you do have to realize that you as an investor, if you have a seven or 800 credit score, that's not necessarily the tenant that is always going to come across. So and we have tenants all the time that have 830 credit score. So it does range. So I'd say credit history is huge. One thing on credit as well that we actually started that's really benefiting our tenants while they rent from us. And in the future as we report positive and negative rental payments now. So that's new and exciting in the last 12 months. So that's the first one. Second would be income and their debt to income ratio. So you make this much gross income, this much goes to debt and what's that ratio look like? And you'll have different thresholds. Along with that comes your employment verification. So you'll do income and employment kind of at the same time from their rental history. So if a previous landlord can give a positive review, say, how many on time payments, late payments, how many times did they bounce checks, how did they leave the house, that sort of thing. And then you'll run into no rental history.
BEN BAILEY: That's going to say like credit. There's going to be people that are 18 to 25 and yeah, they make the money but don't have.
ERIC DIXON: Do you know what's crazy is I moved to I did door to door sales back in the day and we rented this apartment and it wasn't even in my name, but it was the first apartment that I rented, you know, through the company I worked for. And I went to the leasing office because I was like, Dude, I might want to extend my summer rent, another room, whatever. And they're like, Well, this is the application here. List all your references. And I'm like, Dude, I'm like 21. I've never lived on my own as far as renting my own place. And they're like, Oh yeah, without positive rental history, you won't be able to get in. And I'm like, Well, where do you start? Like, how do you It's like, how do you start? Same with credit. It's like, Dude, my credit score is nonexistent. How do I rent a house? So there is kind of a chicken or the egg type thing with, with the rental history, we get a lot that are living with parents or living in a roommate and they're renting a room. And so you kind of have to look at it like, well, you don't have positive rental history, but you don't have negative, excuse me, negative history. So sometimes that works out. The another one that's super important is criminal history. So whether that's misdemeanors, felonies, sex offender check, you know, that sort of stuff, we go in depth and have different criteria for. And then the last one is eviction history and just landlord judgments and so forth. So there's a few non-starters. It's like if you've been evicted before, it's kind of the red flag right out of the gate. But it also could be, Hey, I got evicted nine years ago. Since then I've been married, I've done this, that and the other or since then, I've got a great job, my credit's great now or whatever. So those are kind of the main ones.
BEN BAILEY: Yeah. So you mentioned that like self. Managing I. I it's kind of daunting hearing all that stuff if. If I'm self managing.
ERIC DIXON: Yeah.
BEN BAILEY: You can look up all that stuff right?
ERIC DIXON: You Yeah I mean and there's like tools right. So it's like you can tell you can show the house to somebody and say hey go on to I know it's drawn a blank, but there's a couple of different services. Sure. Yeah. Pay 50 bucks and go do this thing. But then you just get the credit report like, Well, how do I analyze this? Yeah, and that sort of thing. So aside from it just being daunting because it's like hopefully you're only placing a tenant every 2 to 3 years, you know, our average tenancy is over two years. So it's like, hey, every 2 to 3 years you'll get a new tenant and you suddenly need to be an expert on how to read credit, how to do debt to income ratios, all this other stuff.
BEN BAILEY: Well, that kind of leads perfectly, I think, to the next question, because, you know, let's say you are going from self managing to a property management company. They're going to do all that criteria check for you. But one thing you liked before was getting that final say. You got to be like, No, I don't want to rent to this guy. Do landlords still is that still open to them if they're working with the property management company?
ERIC DIXON: So yes and no. So yes in that they have a say if they can move forward, if they don't meet all the check, all the benchmarks. So, for example, you know, I won't get into the specifics of our our benchmarks, but there's a minimum credit score. There's a minimum rental history requirement. There's the minimum income to rent ratio, you know, that sort of stuff. So if you meet those criteria and it's check, check, check, check, check, then when we call the owner and present the application, it's not hey, Ben, here's this person applied and they met all the criteria. Do you want them to move in? It's more like, hey, great news. They met all this criteria. They're moving in on the 27th. Do you have any questions? You know, And so in that case, you don't have a say. Now, let's say they don't meet one criteria, and I'll just say it's a. They. Let's see.
BEN BAILEY: Like no rental history.
ERIC DIXON: No rental history is a great one. I'm sorry. Drawing a blank, but yeah, so no rental history. And we say, Hey, Ben, great news. Credit income, everything's great. They've never rented before, but they've got six months reserves in their bank account. They've got great references. They have a co-signer with an 800 credit score. It's a no brainer. Technically, you could plant your flag and say, Nope, this is my house. I'm not letting them move in. And we could technically say denied for rental history. You could on a credit score if it's one point below our minimum threshold. Yeah, you could say no. And there's going to be sometimes we call and say, Hey, look, we have an application. How desperate are you? Yeah, you know, it's like, you know, there's you're going to have say in those those situations over the years. So I started doing this, you know, property management 11 years ago. And over the years it has gotten more strict and fair housing and the federal fair housing laws and local fair housing laws have tightened up here in Arizona. Obviously, there's the federal fair housing that applies to everybody. But then we have different additional fair housing laws in Tucson, different for the city of Mesa, different for Phoenix, you know, and so there are different subcategories within fair housing by city. And I can't imagine because I used to self manage my own and I can't imagine just going through all that. I actually love the leasing department kind of does it and that I don't know their name. I don't know certain things about them. It's just if they if they meet all the checkboxes, then it's like, awesome, they're moving in.
BEN BAILEY: Yeah. And I think too, like you were saying, when you present an application that checks all the boxes, you know that we're not doing that to say you have to take this person or whatever, we're doing it to protect them or to say like, because it could be perfectly innocent, you know, they could just be like, I got a bad feeling about this, but maybe that person fits into a fair housing category and their assumption is that's why they're being denied.
ERIC DIXON: Yeah, and there's the fair housing categories and protected classes. They call it like familial status, for example. And it's like I have had hard conversations with owners that are like, are they married? Like not relevant. But I'm going to I'm going to keep saying, Ben, I'm just going to kiss you. But I'm like, Ben, sorry. It doesn't matter if they're married or not. Well, it matters to me, you know? And yeah, you know, it is hard. So over the last ten years, it's been just educating the owners. And once they realize, like, okay, that's why I hired a property manager. Sure. To protect my best interest, to make sure we're in line with the law. And at the end of the day, you're providing safe housing for and fair housing. You're providing fair housing to the public. And so if you're not ready to do that, then you're not ready to be a landlord or an investor. You know, you need to be able to say this is a business decision. It meets all the criteria. It's out of my hands. And yeah.
BEN BAILEY: I can see that being difficult for somebody. Like I was saying, that is used to that like kind of gut feeling, you know, of saying like, I want to shake this person's hand and see them and make sure that they're they're good for my property. And it's like, no, you got to trust, you know, And even if you're self managing, you know, these resources are available like fair housing. Oh yeah, that's the kind of stuff you, you want to double down to make sure you're.
ERIC DIXON: No and unfortunately to the you know, there have been applicants that feel because an owner reacts in a certain way. They're like they feel discriminated discriminated against. And we have to explain to the owners and say, hey, wait, wait, we can't we can't say it. We can't do that. Here's why. And then they're like, Oh, that's why. Oh, I thought you were just saying that, you know, they that I had to take this applicant because of X, Y and Z. It's like, No, no, no, you have to take the applicant because they met all the boxes. If you have other questions, let's talk about it. One thing I didn't mention is, you know, if they don't agree with the list price, say they qualify, but they're like, I meet all the criteria and I want to offer less. So you could deny them for saying, no, I don't we don't want to rent it to you based off you're not willing to pay the market rent. Sure. You know, if they're moving in in 60 days, it's like and they meet all the criteria. It's like, no, I'm not holding the property for a reasonable amount of time. It's sort of an end in a couple of weeks. You can't deny them for that. But if they're over 30 days and they're 100% qualified, everything matches. We just yeah, that's when the landlords don't have a choice.
BEN BAILEY: Right? I think that kind of goes good to the next question, which is like, what are those hard reasons that you can't reject a tenant application? You kind of touched on them. But yeah, I think fair housing, when people hear that, it scares them.
ERIC DIXON: Yeah, it does totally. Well, especially when it's like I want to I don't know what the right verbiage is, but it's like the first. Fair housing fine is up to 250,000. Just. Just a measly quarter million. Yeah. Sure. And so I haven't been involved in one where we've where there has been proven discrimination. And it's actually come to that. There have been applicants who, you know, you deny them for a reason that, hey, you had a felony in the last couple of years or whatever it is, and they think they were denied because of something else. One of the protected classes. And we it's been alleged that we did something wrong. And we've worked through every single one of them and it's never been an issue. I actually noted these because I didn't want to miss one. So there's basically seven federal fair housing classes. So race, color, national origin, religion, sex with gender identity and sexual orientation, familial status and disability. And so those are just a bunch of big words that if you're a self managing landlord, that's like you do need to take the time to become familiar with it. If that's the route you want to go and don't even flirt with the line, it's like there is no gray. It is very black and white and sure. And being in the industry, for me, it's just like, no, this is a business. And what I think property management, what it does for your investment is it takes the personal and emotional side out of it and it's like, No, this is a business. It's to make money, it's to fill vacancy, it's to add value to my property. It's to get a better return on my money. It's not like you were saying, Hey, I want to meet somebody. I want to feel their firm handshake. I want to look them in the eye, the old school way of doing things. It's like, No, that's not how it is. Yeah.
BEN BAILEY: I think too, that when you brought up familiar status because you said earlier, you know, like, I want to know if they're married or not, and that seems like an innocent question. It's not. Oh, yeah, Yeah. You're trying to discriminate against somebody. You're saying, Hey, I just want someone to stay for a long time. Oh, yeah. Stay longer. In my experience, no.
ERIC DIXON: And most of the phone calls we have with our clients that are questioning the way we do it, they're like, What do you mean? I can't know their last name or What do you mean I can't know that they're married. They're not asking because they're they're trying to do something wrong or break the fair housing laws. They're genuinely like, wondering, like, No, I just want to know, like, how many kids do they have? And and it's kind of funny. Like you said, it's just innocent. Yeah. And they're just we just have to go. Whoa, whoa, whoa. Ben, You know, that's it's. I can't tell you, And here's why. It's not that we don't have the information. It's not that the tenants hiding it is. We are hiding it from you to protect you, you know? Sure. And our leasing agents, they're great. And they have to actually go through and they say. Applicant one They don't put Eric Dixon as the name when they apply because.
BEN BAILEY: Because even a name you could even.
ERIC DIXON: A name you could assume, you know, whatever. Dixon's has roots in Europe or whatever. Yeah you can just assume.
BEN BAILEY: I knew a guy on my street named Dixon and I like him, you.
ERIC DIXON: Know? So. Yeah, exactly. And so, you know, from that they go. Applicant one credit score income ratio, you know, rental history and they'll have and so it's just data and it's just boom, boom, boom, boom, boom. And they qualify and it's no longer, hey, Ben, here's your option. Do you want to take it or not? It's hey, great news. They met all the criteria. They're moving in in ten days. Isn't that awesome? And it's just a whole different mindset. And you didn't have to show it. You didn't have to run the application. You didn't need to learn the fair housing stuff and you're not open to liability if we did something wrong, you know?
BEN BAILEY: Right. And I think when you when you mention that, it's like we we constantly bring it up on this podcast, but like you kept saying like it's a business transaction. It's like you really do have to take that emotion out of it, you know, like. I before I started working here, it's like, well, if I had an investment property, of course I'd want to know who's living in there. And of course I'd want to meet them in person and make sure they're going to, you know, take care of the carpet and do this and that. And it's like you don't realize that that is putting an emotional attachment on it that is not going to help you.
ERIC DIXON: Oh, yeah. Oh, did I actually almost died like getting too emotional. So it wasn't with the application process. I own this four plex in Mesa. I to this day, man, I wish I never sold it. It's awesome. And but I met this guy. This guy there, his name was Ivan. And one night, you know, he called me to come fix a stove and I'm like, Dude, I'm handy. I don't know. I had one or two kids at home, but I just went over there one night and I'm like, Oh, I need to switch the pigtail from the stove to the the, the outlet. It's a 220 thing. It's like, Dude, I'll switch the breaker off and I'll just swap it out real quick. 10 minutes, dude. Well, I get to know these people so well, like, Hey, what's up? I get to see his wife and kids and I'm distracted. Dude, I forgot to turn the breaker off and I pull the stove out and I just have my have my fill up screwdriver in my hand, and I go, I just touch it and pop the hole. I just pop. I fly into the wall. The whole all the lights go off. Yeah, the whole panel busted. And I'm just like, Oh, dude, like, I was totally okay. It just shocked me and I freaked out and I was just like, What am I doing? Yeah, like, what? Why am I here right now? Yeah, Like to save 85 bucks or 100 bucks to have an electrician and maybe plus materials, 150 bucks for somebody to come in here for 10 minutes and swap this out. And that doesn't have to do with applications and stuff, but it just the emotional side. Yeah, it's like, no, they were friends. Like these were friends of mine renting from me under market rent, by the way, by like 300 bucks a month.
BEN BAILEY: So you almost died?
ERIC DIXON: Yeah, it's 100 bucks.
BEN BAILEY: And you were 300 bucks.
ERIC DIXON: Yeah. It's a two year point. We're going to we're going to hit this hard. It's whether you use our our company or someone else or you're going to continue doing it your own way. You have to treat it as a business. You know, it took me years. I mean, dude, I almost shocked and killed myself. And still, I think it was two years longer. It took me to bring them, you know, to bring them over to our own company, you know, just because I was so emotionally attached and I would get texts, dude, about, Hey, sorry I can't bring the rent or Hey, can you come pick up cash? And I'm like, Sure. Like, I'll make a special trip tomorrow morning. Yeah. And then I show up and they're not home and dude, countless, countless things. And it just goes back to I wasn't taking my rental seriously. I wasn't treating it as a business. I was too worried about jumping over. What's the the phrase like jumping over dollars to pick up pennies. Yeah, because jumping over all these other opportunities to save a couple bucks in time where in reality I should have spent that time investing more or researching or, you know, hanging out with my family maybe. Yeah. I mean, that's really it's like time is what I couldn't get back. So.
BEN BAILEY: Yeah, for sure. Well, I think then the last question I wanted to ask you and this is just from conversations I asked our leasing guys, what do you hear the most from prospective tenants? Because they're the other side of this equation that are applying. And I think it's good for landlords to know what are people constantly asking. And they said the thing that people don't always ask is pets.
ERIC DIXON: So it's good to say, hold on. Let me say it's got to be pets. So my office door, my office door faces leasing, right? So they're like on cue, this is so-and-so. No, that property doesn't take pets. And that phone call ends quick because they're just like, oh, jeez, you know, and I don't hear the other end of it. But I was going to say, Dude, it has to be pets. So what's your question? Because I totally distracted. I was I was just thinking of my think in my head.
BEN BAILEY: As a landlord when we're talking about the application process. If you're not including I mean, like, I guess kind of it's all about pets. Is it worth reconsidering that on a case by case basis? Can you even do that? Or if someone even if you say no pets, if someone comes and they have like an essay service animal, does that change?
ERIC DIXON: I was going to say so, dude. So essay a service animal is a whole other podcast because honestly and it's not a negative connotation thing. It's like, no, it's a very positive thing. And we need to understand as an industry, as landlords, as investors, that essay emotional support animals are not only are they important, you need to know what you're doing. They they're everywhere. Like people have them and they need them. And so that could be its own podcast. We can hit later. But going back to pets, if you are saying no pets and trust me, it's coming from me like those who know me. Ben Ben knows this about me. I don't have pets. I love animals that aren't mine. Yeah. And so I love pets. Like I go to someone's house, they have a pet. Cool, whatever. But I go home and I'm just not a pet person. I grew up with no pets. I still don't know if it's true, but my mom told me she was allergic to dogs and cats. Sure. And so I've been telling my kids the same thing.
BEN BAILEY: Same.
ERIC DIXON: So I just tell them I'm allergic.
BEN BAILEY: Convinced I'm allergic.
ERIC DIXON: But there are there are huge benefits not only to listing your property available for pets, but if you say no pets, the pool of tenants is just way smaller. So we even polled our our employees here and said, How many of you have pets? And it's like 75 or 80% of of just our employees. Right. And then somebody made the comment that said most of our applicants have pets or they have pets and didn't tell you. You know, and we know that based off when tenants move out and we're like, that's weird. It smells like dogs. Or we do a routine inspection and we're like, There's no pets, there's no dog food, there's no nothing, but it smells like a dog, you know? And it's like people either have them or they're hiding them, you know? And so and there's two big things. I mean, you've got to be open to it just so you can cast a wider net of like, if you say no pets, you're just missing out on people and you're going to probably rent it for less money. If you say yes to pets, you know, then it opens the the net to be wider. But you can also do in the middle. This is what I do personally. This is not an on cue thing, not a Ben or Eric thing or actually it is. And yeah, it would.
BEN BAILEY: Be an Eric.
ERIC DIXON: No, this would be mine is I do small dogs, no cats. And it's only because and I've got to get over this. Maybe next time I'll get over it is one property got destroyed by cats of mine. Tens of thousands of dollars Right. And so I do like dogs under £50. No cats and I have no problem. And I think all but one of my rentals has pets. And so I was looking before the podcast and I was clicking through. I was like, Oh, there's a pet addendum on all but one. And so it's like it's it's 90% plus have a pet. Yeah. And if I would have done no pets, it probably would have taken longer to rent, so more vacancy or it would have rented for less because it's just less. People are interested and it's a supply and demand thing.
BEN BAILEY: Sure. And you I think you don't want to put that stigma and just assume I mean, there's people like you said that check all those boxes, they might be the best applicant in the world and you're not going to get them because they have a dog. You know, it's like a kid to them. It's not an option.
ERIC DIXON: And a dog. We didn't mention it, but a pet is a not a protected class. And so you can deny somebody if they have a pet. Yeah. And so if you're like, Hey, the awesome applicant meets every box and then they have a, you know, a £50 golden doodle or whatever, I don't even know if they get that big. But the, the they could say, oh, sorry, no pets, you know, now if it's an essay, it's an emotional support animal. It has no bearing to the approval process there. But the. You know, in my experience, and it took time for me even. I mean, this is the biggest the last point I'll make is owners that are moving out of their primary residence and they're hiring us to rent their home and they have no pets at their house. They have the hardest time accepting pets. Sure. And they're just like, oh, my home is going to get ruined by pets. And I'm like, dude, we do just as much or more damage as humans to this house than pets do. Like, you know, it really. So, you know, the bottom line is my suggestion is be open to pets for sure. If you want to have a weight limit, if you want to have a couple of different restrictions to kind of tone it down a little bit, you could start there. It can also create more income for you. You can charge pet rent, you can have pet deposits. You know, all this other you know, these other protections there. But just in pet rent, I mean, you'll make hundreds of dollars more a year and that potential damage that they do, you could use that extra money to fix it, you know, or the pet deposit. So there's other positives, too.
BEN BAILEY: Awesome. All right. Well, I think that's it. We kind of went over the broad strokes of it. And, you know, we'll have to do an episode just digging into S-A.
ERIC DIXON: Oh, yeah. No, that'll be a good one.
BEN BAILEY: Yeah. Coming up. So that's it for us today. Thank you so much for listening. Be sure to subscribe and leave a review wherever you get your podcasts and we will see you guys next time.
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Arizona Designated Broker: Eric Dixon
Texas Designated Broker: Rodney Henson