A Candid Look at the 4 Key Challenges That Landlords Face

The demand for rental property in the U.S. has been steadily growing since 2005, and this trend is set to continue, according to The Joint Center for Housing Studies of Harvard University (JCHS). It is no surprise that more people are deciding to become landlords, therefore, we are asking this question today: Is it worth it?

The JCHS shows us that on paper the rental business is sound in the medium term, at least.

JCHS reports that since 2005 the number of American households living in rental properties has risen by around nine million, the biggest increase on record. And over the last 10 years, the share of rental households in the U.S. has gone up from 31 to 37 percent to reach its highest level for more than 50 years.

The sharp rise in the number of rental properties in the U.S. has been particularly pronounced since 2010. Some 1.05 million new rental households have joined the market every year since then putting “the 2010s on track to be the strongest decade of renter growth ever recorded,” says JCHS.

Rental property is considered to be a sound way to build a passive income, which can be life changing. Rental income has allowed people to take early retirement and achieve wealth and financial freedom that is only a dream for others. Real estate has been outperforming stocks and real estate investment trusts (REITs) … so why are we questioning whether becoming a landlord is worth the effort?

It is just that. The effort involved is enormous. Becoming a landlord is expensive, with the minimum downpayment an average of 20% of the property value. It takes a great deal of hard work to enter the market, not to mention ongoing maintenance of the property and management of tenants. In this post, we are looking at the four key challenges that landlords face, in an effort to determine if the returns make it all worthwhile.

1. Finding the Right Property

Image courtesy of formalholdings-realestate.comOne of the key elements that makes being a landlord worth it or not, starts before tenants are anywhere in the equation. The real money in the deal is made at the very beginning, when choosing the right property and negotiating a buying price.

With thorough research and the help of a trusted real estate agent, you should be able to find a property in a great location that is highly attractive to renters in the area. You should also know the maximum price you can purchase it for in order to make the investment worthwhile to you.

This is crucial to making money, in both the short term and also over the life of the investment. When looking at a “fixer-upper” be cautious, as the attractive price may not be a fair trade off in comparison to the time and cash required to convert it into a livable unit. You need to know the cost of materials and labor required to refurbish the property before you place an offer.

Jason Sherman, who owns a communications and marketing firm in Chicago, has bought eight fixer-uppers over the years and rented out most of them. He advises that if you’re going to buy one, bring in a contractor for a walk-through beforehand. “But you should also do your homework so you know what materials cost and how much time a project takes, and so you know if what your contractor is telling you is fair,” Sherman says.

Any house that you buy will need to be prepared as quickly and efficiently as possible, to make it clean and attractive to potential tenants, in order for you to start receiving rent.

2. Choosing Good Tenants

Many of the landlord nightmares that you hear revolve around a “bad” tenant, who either refused to pay rent, destroyed the property or has had to be forcibly removed. These situations are, fortunately, in the minority, but they do happen. Even tenants that consistently pay a few days late are enough to cause real hassle, so it is no surprise some landlords decide that renting their properties is simply not worth the effort.

Image courtesy of evanlaar2012.files.wordpress.comFortunately, there are simple steps you can take to vastly improve the likelihood of securing a good tenant. This does take a little more work, but good tenants are worth their weight in gold!

We recommend you screen all potential tenants thoroughly before deciding on who will live in your rental property. This should include credit and criminal checks, calling employers and past landlords and even using social media for screening. All potential tenants should be screened using the same criteria, and you should also be aware of the laws forbidding discrimination by landlords.

Once you have chosen a tenant, be sure the lease agreement includes a clause for late payment, so you are protected in the event that they do have financial difficulties. Charging a late payment fee is usually enough to deter tenants from making this a habit and establishes a business relationship from the beginning. If you fail to include this in your lease agreement, however, you leave yourself uncovered if a tenant does pay late. Take a look at this advice for tenants from NOLO.com.

If your lease or rental agreement says nothing about late fees, your landlord may not impose one, no matter how reasonable it is.

Laws in a few states restrict the imposition of late fees, both by amount, and whether the landlord must wait until you’re a certain number of days late before he imposes them.

The fee should be within a certain percentage of your rent. Your landlord is always on shaky ground if the late charge exceeds 5% of the rent. That’s $38 on a $750-per-month rental. Of course, if the rent is extremely late—say, ten days—a higher late fee, such as 10% of the rent, might be reasonable.

3. Maintaining the Property

Image courtesy of hsconstruction.co.zaThe one thing about investing in a house rather than in stocks, is that stocks never get leaky roofs, nor dripping faucets. So does that make being a landlord too much like hard work?

This really depends on how much effort you put into regular maintenance. You should expect to spend money to keep your investment property in good working order, no matter if it is a new build, or an older home. You should calculate this into a monthly fund (more on that in a moment).

Houses need to be taken care of, and usually issues that are recognized quickly, can be rectified more simply. For this reason, it is advisable to conduct regular inspections on your rental properties, this way you can check the floors, doors, roof and anything else that may show early signs of trouble.

A savings fund will ensure you are prepared to fix any issues quickly, and, hopefully, expensive items such as the roof won’t need work too regularly. Your building’s inspection should give you an idea of what to expect. A guide on how much money to save for maintenance is offered here by About Money.com.

One popular rule of thumb says that one percent of the purchase price of your home should be set aside each year for ongoing maintenance. For example, if your home cost $300,000, you should budget $3,000 per year for maintenance.

That doesn’t mean you’ll literally spend $3,000 every year. It just means that on average, over a span of a long time period (10 years or more), you’ll spend around $3,000 annually, according to this rule of thumb. Some years you’ll spend far more; a roof replacement, for instance, will cost $4,000-$8,000. Other years, you’ll spend far less.

4. Managing Cash Flow

Image courtesy of greekshares.comThe final factor in deciding whether becoming a landlord is worth it or not is the profit that is made. Remember above all, that being a landlord is a business. Your main aim is to purchase income-producing property.

So, after the purchasing fees, mortgage payments, repairs, maintenance, taxes and other costs, there should be enough money from rental payments to make it worthwhile in the immediate term, as well as increase in property value to make the investment worthwhile in the long term. You can recruit the services of a financial advisor to help you make the right decisions, or try this cash flow calculator to see if your sums add up.

Summary

Being a landlord is hard work, without a doubt, but if you manage each aspect and are prepared along the way, the benefits can be worthwhile. You can use a real estate agent to assist you in the early days conducting research, and, if the stresses of tenants, with hidden pets, vandalism and late payments is too heavy a price to pay on your sanity, then it may be best to consider a property manager to handle that burden.

Investing in rental property can be expensive and stressful, but the long term gains can really make it worth the effort, and there are services to support you along the way if you need them.

The Importance of a Landlord Business Plan

According to Reuters, demand for rental property is remaining strong despite other challenges within the economy, which means that it continues to be attractive for individuals looking to invest.

U.S. housing starts rose solidly in September (2015) on soaring demand for rental apartments, a sign that the housing market continues to steadily improve even as economic growth has slowed.

… It was the sixth straight month that starts were above 1 million units, pointing to a sustainable housing recovery.

Many are becoming landlords with the hope to change their financial future, and open doors that would have otherwise remained firmly shut, thanks to rising debt and fewer employment opportunities.

The worrying trend that we are seeing though, is for some to consider investing in rental property as a “get rich-quick” scheme, and a way to earn an easy buck. That couldn’t be further from the truth. Becoming a landlord is a long-term investment that can be extremely lucrative, but only when it is treated as a business with a carefully crafted strategy for success. This post explains why such a business plan is important to your success as a landlord.

Identify Your Goals

Image courtesy of teamgantt.comBecoming a landlord is not a form of passive investment. As we have said, it must be treated like a business, and as such, you must identify your goals before you begin.

Knowing what you intend to achieve in the short, medium and long term will help to shape your decisions along the way. For example, you should decide if you are looking for a strong passive income enabling you to quit your job, or are you looking to break even while you slowly pay off the mortgage, for a long term gain?

Knowing what you want to achieve will determine the amount of time and energy you invest in the business, and will reveal if you need to develop any skills in yourself, or if you should hire an expert to support you from outside.

Keeping all emotion out of the planning process will help you to see your objectives clearly, and you will be able to plan your strategy from there. If you feel like you can skip this step, take a look at the following excerpt from Personal excellence.co, on people that don’t set goals.

Have you ever encountered people who have a passive approach toward life? They don’t set any goals and they just live life on a meandering, day-to-day basis. You see them 1 year, 3 years, 5 years from now, and their lives are largely the same, save for a few changes that are really more the result of others’ actions and desires rather than their own.

2. Assess the Costs

Once you know what you want to achieve with your rental business, you can start to assess the costs involved. When purchasing rental property, these costs fall into two categories: the upfront payments and the ongoing fees. Both need to be considered carefully.

Image courtesy of thumbs.dreamstime.comMuch of the long term profit of a rental property investment is determined at the point of purchase.

If you pay too much for a unit, you will lose out in the long run, so always aim to buy below market rate. When it comes to the mortgage, research the options and take time to choose and secure the loan, trying to negotiate the interest rate will also make a huge difference to the profitability of your investment.

Take into account that with a rental mortgage, you will typically be required to pay a downpayment of 20% of the property value, and also to prove that your income will cover the cost of your own home loan, as well as the rental property.

The ongoing costs to consider include taxes, insurance and maintenance, and these should be weighed against the rental income. Once you are able to determine the expected monthly profit per unit, you can ascertain how many units you will need to procure to achieve your landlord goals.

3. Calculate the Risks

Image courtesy of d3q3vb188evqe3.cloudfront.netAs with all investments, there is real risk involved with buying real estate to rent; therefore, a good business strategy is to calculate these risks carefully. It might be sensible to start small, with a single apartment for instance, learning the risks as you go.

Learn everything you can about your “product,” by which we mean the type of home you want to purchase to rent and research the area intimately.

You can even go as far as to pose as a potential tenant and visit rental properties on the market to discover what is available and for how much. Become an expert in the demographics of your chosen area, so that you can purchase the kind of property that appeals to the renters living there. Better still, enlist the skills of an experienced real estate agent who already knows more about these details than you could imagine.

We have all heard the overused phrase “location, location, location.” In fact, it is widely believed to be the single most important aspect about investing in real estate. However, it has been used so frequently that the importance has started to become watered down. The reality is that without a good location, the best numbers and the best data will quickly become irrelevant when buyers or renters show no interest in the property. [source]

4. Attract the Right Customer

Once you have decided on your location and property type, you have probably narrowed your pool of potential tenants to a select demographic, which is perfect. But you can’t leave it there. You need to attract and choose your tenant carefully. This will start with the rental price.

Image courtesy of blackmainstreet.netThe amount of rent you charge should be chosen after considering your monthly costs and expenses, taking account of other properties on the rental market.

You want to remain attractive to tenants, without losing your monthly income. If it is possible to position yourself slightly below the average in the area, you should guard against expensive vacancy, but that is not always possible. Compare your initial goals with how much you hoped to earn as profit to keep you on track when making these decisions.

Screen your potential tenants thoroughly, using the same process for each. By checking credit and criminal ratings, as well as following up on references, you have the best opportunity of choosing someone that is reliable and responsible enough to pay their rent on time and take care of your investment.

If you do find a good tenant, then do everything in your power to keep them happy! They are your customer after all, and a good tenant will save you stress and money over the months.

The essence of an investment in real estate is a good tenant,” said James McClelland of the Chicago-based Mack Cos., perhaps the largest owner-manager of single-family rental properties in the Midwest. “A good tenant in a bad location is better than a bad tenant in a good location.Market Watch

5. Build a Solid Team

Image courtesy of royaleliteinternational.comIf all this sounds like hard work, then you are right! It is serious hard work. That is why a great part of your strategy could be to build a strong team around you, of trusted professionals across the industry that can assist you.

A real estate agent can be invaluable in supporting the purchase of your rental property, and can connect you with their network. Your team can include people in areas that you lack skills and expertise, and may include the following: an attorney, contractor, accountant, mortgage broker and even a property manager, that can handle ongoing inspections and tenant concerns. It is prudent to choose professionals based on personal recommendations, and keeping your business head, move on when relationships are not positively working for you. Once established, a team can save you time, hassle and money, so they are usually considered worth the cost of using their services.

Engaging the services of a property manager is about more than no longer having to worry about the fine details. It also means that the big picture should be taken care of as well. And in this case, that means ensuring your properties perform to their utmost potential.” [source]

Summary

Becoming a landlord is simply a different form of developing a business, and as a result, it is essential to create a business plan. This article identified five of the main aspects to consider when starting out in the rental property business. We have covered everything from setting solid goals, calculating the costs and risks of rentals, keeping the customer happy and building a team. Following these guidelines will keep your business strategy clear in your mind, giving you the best chance of success.

Is raising rent the best choice for you?

It’s that time again: the end of your tenant’s lease is coming up and you’re looking at your options. They’ve been great, you hope they stay on, but rental prices are on the rise all around you. Should you raise their rent too? If so, how much? There’s a fine balance between making sure that you are taking care of your tenants so that the good ones will stay with you and making sure that you’re earning a profit in your business.

Before you raise the rent, there are a few questions you should ask yourself:

How does the rental income compare to your mortgage? If you’ve taken out a mortgage on your real estate investment, there will be a percentage of the rent that you use every month to pay on that. Part of deciding if it’s time to raise the rent or not will be taking a careful look at your rent versus mortgage ratio, which will include understanding the details of your mortgage as well as adjusting your ROI expectations.

Do you need to raise the rent? You will need to find a balance between what you need to turn a profit in your business and encouraging your good tenants to stay. Part of that is being aware of what other landlords in the area are charging. If you raise your rent above what they have similar properties set at, your tenant may feel it’s a better option to move, leaving you with the turn around and possibly even a vacancy for a length of time.

Is it legal for you to raise the rent?

What are your tenant’s rights? Tenants have certain rights when it comes to rent increases. You’ll want to make sure to check your local laws and have a thorough understanding so that you approach the situation in the best way possible.

Is your property considered a rent stabilized property? Depending on where your property is located, it may be considered a rent stabilized property. Take a look at the article above to see what that covers and what the rules about raising rent.

Is your tenant covered by a senior citizen rent increase exemption? Some local laws will cover various rent increases, including increases on senior citizens. While it’s not covered everywhere, you may want to check what is considered legal in your area before raising the price of rent if your tenants are senior citizens.

What does the law say about Section 8 rent increases? If you’ve decided to open your rental up to Section 8 tenants, you may find a few more restrictions than you would have had otherwise. Like with many things, there are pros and cons to choosing Section 8 tenants, but you’ll want to make sure that you follow the law when it comes to raising rent on these tenants.

Can you raise the rent on a disabled tenant? Once again, this may depend on the location of your rental, but some local laws will limit how much you may raise the rent on a disabled tenant due to the fact that they are likely on a fixed income.

What if you decide to raise the rent, then what?

Knowing it’s time: There are a variety of reasons why you may wish to raise the rent on your rental property, including keeping up with rising costs. If you choose to, you should make sure that your timing is right and that you stay on task when it comes to letting your tenants know about the change.

Writing a rent increase letter: Once you’ve made the decision to raise your tenant’s rent, you’ll need to let them know. You should provide this information through a written letter before you give them the option to renew their lease so that they have time to consider their options.

Tips for negotiating a rent increase: When you choose to increase the rent, there’s a chance that the tenant may wish to negotiate that increase. It’s good to know the type of negotiations that they may try and if you’re willing or even able to budge on anything for them.

Helping to take the edge off the increase: If you have a great tenant that you don’t want to lose, but costs and the local market are requiring you to raise rent, you may think about offering them something extra if they choose to sign on for another year with you. This helps to show them that, even though you feel like it’s necessary to raise the rent, you still care about them and hope that they’ll stay.

Additional options: In addition to the above options that you can offer to your tenant to encourage them to stay in your rental, you may think about reaching out to local businesses to see if they are willing to work with you. You can offer discounted prices that will last throughout the year, rather than a one-time gift.

How to Save Money in All Aspects of Your Business

Running a rental business can be difficult. There are many moving parts and often it feels like not enough time in the day to handle them as you should. One thing you can do to elevate some of the pressure is to cut costs without cutting efficiency. That can come in many ways, so LandlordStation has gathered a few tips for you below to help you find the best place to focus on so that you can start saving money.

  • Save on Taxes – If you forget or don’t know what to deduct from your taxes as a landlord, you’re throwing money away. There’s a set of deductions that landlords can take advantage of that could save you quite a bit each year.
  • Save on Insurance Premiums – Your rental will need to be insured, but you’ll want to make sure that you’re not paying more than you should be for what you’re receiving when it comes to your monthly premiums.
  • Save on Electricity – Some landlords cover utilities, some do not, but if you are handling even part of the electrical bill for your rental, you’ll want to make sure you find the best deal available.
  • Save on Landscaping Costs – Certain locations have bad droughts at during the warmer months of the year and water is rationed. Landscaping that does not require a great deal of water to keep up will help you cut down on watering expenses.
  • Save on Upgrades – If you’re planning on upgrading your rental anyway, you may want to look into certain eco-friendly upgrades that can save you money in the long run.
  • Save on Maintenance
    • Preventive – Maintenance emergencies can be expensive, and while you should always have some money saved back for those occasions, you can help to save that money by keeping up with preventive maintenance.
    • Tips – If you keep up on small maintenance issues you won’t find yourself having to do major repairs nearly as often. A touch-up job here may keep your paint looking fresh longer or a carpet cleaning could prolong the life of the carpet in your rental. 
    • Using Daily Sites to Cut Costs – Sometimes saving money means getting creative. Instead of paying top price for quality work, you may want to check daily deal sites to find coupons so that you can receive top quality work for a fraction of the cost.

How to Make Your Rental a Safe Place

Promoting safety in your rental will help protect both your investment and your reputation. If your tenants are committing crimes in your rental, it could potentially make you liable, depending on the type of crime. While it can be difficult to make that judgement call before really getting to know them, there are a few ways to protect yourself against criminal activity and the legal situations that that can bring about.

Screen Every Incoming Tenant – A thorough tenant screening process is one of the best defences that you can put into place for your rental business. The tenant(s) that you accept into your property will have full access to it without a great deal of supervision, so it is imperative that you know who these people are to the best of your ability. A credit, criminal, and eviction report may not provide 100% certainty, but it will give you insight into how they approach debts owed and if they have had any prior run-ins with the legal system.

Know the Limitations of a Background Check – Everything in this world has a limitation, but the limitations of a criminal background check can be very frustrating to a landlord trying to protect their investment from people that might cause trouble if accepted as a tenant. There is no central database for these records, which makes collecting them difficult in some cases. Records may not make it into a search or they may take a bit longer for the county to provide them, but part of protecting your property will come with understanding how to work around these limitations.

Reasons Why a Record May Not Show – There are valid reasons why a record may not show up in a traditional background search. Part of protecting yourself against surprises down the road will come through understanding the limitations and finding ways to work around them. This article provides a few additional reasons to the above article.

Accepting a Tenant With a Record – While you should always have policies in place as to what you will and will not accept in terms of credit, criminal, and eviction history, there are certain considerations you should make before you simply throw an applicant with a criminal background out.

HUD Guidelines for Criminal Records – The US Department of Housing and Urban Development issued a set of guidelines within the last year that may affect how you approach applicants with a criminal record. While those with a criminal record are not considered a protected class, per se, HUD’s reasoning behind the new changes is that denying someone based entirely on their criminal record may lead to discrimination against race or color.

Illegal Activity Warning Signs – As previously noted, criminal background checks may be missing information, so you’ll want to make sure to keep an eye on your rental property. You may have accepted the best tenants you’ll ever have, but if you start seeing warning signs of illegal activity, you’ll want to at least take a closer look.

Spotting Drug Dealing/ Manufacturing Signs –  Drug dealing and manufacturing can be a very dangerous brand of criminal activity that you will want to watch out for. If your rental gains a reputation for drug trafficking, it may be difficult to rent it again once you get the delinquent tenant out. 

Tenant Mediation – As a landlord you may often have a tenant come to you with a complaint about another. If it’s something small, or a complaint about non-compliance with the lease, you should have a set of policies that direct how to handle the situation. If the complaint is criminal in nature, you’ll need to know how to handle it with the utmost care.

Evicting Problem Tenants – One reason that you may choose to go through the eviction process is to handle a tenant that has broken the lease that you signed with them. This could come in the form of non-payment of rent or it could be that you’ve discovered illegal activity in your rental. If you decide to pursue and eviction, be careful that you take all of the necessary legal steps.

Promoting Safety in the Rental – Part of protecting your rental will be to promote safety with your tenants. Criminal activity inside the apartment or house is not the only concern. You’ll want to make sure that law-abiding tenants living within your rental feel safe in their home as well.

The LandlordStation Guide to the Legal Do’s and Don’ts of Screening Tenants

Landlords, we understand how long it can take to choose your rental location, find your ideal unit, organize the funding and prepare the place so it’s ready for tenants … every step of that process costs you money. We realize your goal is to have someone living in your unit as soon as possible! Of course you want to start immediately receiving rent, so you can start to earn money on your investment.

However, we’re here to warn you to not rush the last step: finding a tenant. Choosing the “wrong” tenant can be a devastating blow to your rental business and can cause enormous damage to your rental property!

Unfortunately, the worst case scenarios – such as non-paying tenants who don’t take care of your property and refuse to leave – do happen! While it is impossible to guarantee you can always avoid this situation, careful and thorough tenant screening can go a long way in helping to find a solid tenant, allowing you to protect your investment, as much as possible.

The only problem is that screening tenants is a legal minefield. Many landlords inadvertently break housing laws and expose themselves to potentially crippling legal action. This blog post has been created to help you navigate the law governing tenant screening so that you can find the right person to live in your rental unit, without breaking the rules. Here are the do’s and don’ts you need to know.

Do Investigate Housing Laws on Rental Limits

Before you begin advertising and screening potential tenants for your rental property, take valuable time to research the specific laws in your state. There may be restrictions on the rent you can charge, the security deposit you can ask for and, certainly, on the screening criteria you can use to decide on the successful tenant to move into your property. To learn the rights of tenants in your state, click on this link.

Image courtesy of thebudgetnistablog.comDo Decide a “Rent to Income” Ratio

When you’re ready to advertise for tenants, decide upfront on your basic requirements. This will ensure you can weed out the majority of callers immediately without investing too much time into the process. A useful first screening determinant is a rent to income ratio. Many landlords decide that their tenants must be earning at least three times the rental amount.

Do Conduct Initial Screening Over the PhoneImage courtesy of interviewsos.com

When you advertise your vacancy, ask interested candidates to call. This will allow you to discuss your basic requirements and conduct an initial screening quickly and efficiently. This way you won’t waste their time and you will also save yourself hassle, too.

Don’t Ask Discriminatory Questions

When screening potential tenants, you must always be aware of questions that may be discriminatory. You may not refuse to rent your property based on any of the following factors: race, color, national origin, religion, sex, familial status or handicap. These are known as the protected classes.

Do Meet the Prospective Tenant

Once you have conducted your initial screening, it’s beneficial to meet with the prospective tenant at the property. This gives them an opportunity to see if the property is suitable for their needs and also gives you an insight into the kind of person they are, too. Be aware of answering questions such as, “Is the area safe?”

Anything you reply here could be considered misleading. In this instance, it would be better to suggest that the individual researches police statistics and visits the location at various times to make their own decision.

Do Request an Application Fee and Permissions

If both the potential tenant and you are satisfied to proceed with the application following the meeting, send an application form, with requests for permission to complete background checks, and also collect an application fee. This will give you everything you need to start the full screening process.

Do Follow a Set Process Every Time

Be sure you stick to the same process every time, for every single potential tenant and keep records of your findings. This keeps the application process fair and consistent. It protects you in the event of legal action brought about by the potential client, and it also helps you to compare results from different individuals.

Do Complete a Credit Check

A credit check will provide you insight into the financial responsibility and spending habits of a potential tenant. You’ll learn their history of late payments as well as any debts they may have.

Do Complete a Criminal Check

You want to keep your property and other tenants safe from harm, so be sure to conduct a search of any convictions over the last seven years.

Do Check Employer References

Employer references are important, as you want to know that your potential tenant is able to pay their rent on time every month. A steady income is a good indication of reliability here. Look for three years employment history and the current wage. It is useful to phone the current employer for this information.

Do Check Landlord References

When it comes to landlord references, be aware of the potential for false details to be given. Try to use specific information from the application form to verify the accuracy. Ask for information about the duration of the lease and whether the payments were made on time each month.

Do Check Personal References

With personal references, there will virtually always be an element of bias, as the prospective tenant will provide the contact information of family and friends. Don’t let this put you off however, we recommend you still follow up and make these calls, as the information can be useful.

Image courtesy of tempay.comDo Use Social Media

Social media can be a very useful tool for landlords to use when screening potential clients. It can be used to verify the general details that have been provided on the application form. It is also a great way to determine if the individual has pets.

Always keep in mind that information shared on social media may not be true, and, above all, be very careful of breaching the potential tenant’s privacy. Any information that you inadvertently discover regarding protected classes may not be used at all in your decision making process.

Don’t Fall for Emotional StoriesImage courtesy of s3.hdstatic.net

When deciding on the right tenant to move into your rental property, make sure that gut instinct or tugs on your heart strings aren’t playing a part. Choosing the best tenant is essential for the smooth running of your business, so it’s imperative you have a sound basis behind your final decisions.

Do Take Full Deposit

When you decide on the right tenant and agree on a date for them to move into the property, don’t be tempted to accept anything less than the full deposit and full first month’s rent before they enter the property. 

Image courtesy of insuranceage.co.ukDon’t Hand Over Keys Until Everything Is in Place

Only once the full process is complete, contracts are signed and money is in your account, should you hand over the keys to the property.

Summary

Every landlord wants to secure tenant that will pay their rent on time, every time and respect their property; therefore, it is essential to thoroughly screen each prospective tenant. This can take time, but it’s worthwhile, if you want to avoid potential future legal action and hassles with eviction. At LandlordStation, we offer a quick and easy online tenant screening service saving you a tremendous amount of the hard work. The whole process can be started with just an email address, and we take it from there … it’s that simple.

Your prospective tenant can input their sensitive personal data without you needing to get involved. Once the details have been given, we conduct checks on the following:

A full report is then sent to you, so you can make a quick informed decision to approve or reject from there. It can be as simple as that to find great tenants, protect your investment and stay within the law!

What Does the Eviction Process Really Cost You?

Evictions are a landlord’s worst nightmare. If you’ve been through the process, you know this from experience. If you haven’t, you likely know from other landlords’ experiences.

There is nothing enticing about going through what can be a long, expensive, and drawn-out process to force a tenant from your rental. If it’s come to this, it’s a safe bet that you’ve reached your limit with them, but what is the true cost of an eviction?

For your tenant, an eviction on their record can affect their credit score and limit their options on rentals in the future. An eviction judgement will be available to future landlords, employers, or anyone else that would search their public records. The eviction will remain on their report for, on average, about seven years.

Those are a few things that it will cost the tenant, which can be a major hindrance to them moving forward (and a good deterrent to keep them from breaking the lease in many cases!), but what does it mean for you as the landlord and property owner?
 

Why Do Evictions Happen?

An eviction will, in most cases, boil down to a breach of some kind in the lease.

This can show in a variety of ways. Your tenant may be late in paying rent, be involved in criminal activity of some kind on the property, damage the rental property, or refuse to rectify some other action that they’ve taken in direct violation of the lease.

While they may have what sounds like a valid excuse for their behavior, the key is to keep things in perspective for your business. If they do not pay rent, there is a good chance that it will hurt your ability to pay on the mortgage or to keep up with needed repairs for the property.

A tenant that commits a crime on the property opens the landlord up to legal action against them as well as the tenant.

Damage can be done to the property in a variety of ways including, but certainly not limited to, unapproved pets scratching up floors, too many people living in the rental, smoking indoors without permission, and so much more. If you’re particularly unlucky, you may have a tenant that stretches the boundaries of creativity when it comes to the damage that they leave in their wake.

Noise complaints, threats against other tenants or neighbors, and other issues that are likely covered in your lease can cause a major problem for you as a landlord if they continue unchecked. In the end, if the tenant refuses to work with you or if the situation opens you up to liability, an eviction may become imminent.

 

Do’s and Don’ts of an Eviction

As with all legal processes, you will want to check your local eviction laws to make sure that you are crossing every t and dotting every i.

There are few things as exasperating as getting to the end of an eviction process (also referred to as an Unlawful Detainer Case) and having the case thrown out on a technicality, which will put you back at the beginning. In general (with the understanding that local laws may differ from state to state and sometimes even from county to county), an eviction process will look something like this:

  1. The tenant violates the lease in some way. What that violation is will depend on how you approach the next step.
  2. Provide your tenant with a written warning. While there may be a specific instance in which you are legally able to jump directly into the eviction process, most states will require a written warning that allows the tenant to rectify the problem before the eviction begins.
  3. If they do not correct the problem at hand, you will need to provide them with a Notice of Eviction. You will want to make sure that you follow your local laws on how this should be delivered and keep careful records.
  4. Eviction notices allow a time period for the tenant to cure the problem, but once the allotted time has passed, you will need to file the appropriate paperwork with your court system. (There will be fees involved here, but we’ll get to that in a bit.)
  5. Next you should get ready to attend court. Make sure to have everything filed correctly and all of your evidence organized. Even if the tenant doesn’t show up to the hearing, you will need to, and you will need to be prepared, with documents in writing and verification of the dates they were delivered.
  6. The eviction date will be set if the judge rules in your favor. In the best case scenario your tenant will leave by that date. You may need to contact the sheriff’s department if they do not.
  7. If the tenant owes you money, you may wish to try to recover some of those lost funds.

That is the best-case scenario. There are plenty of places in which a stubborn tenant can cause trouble and add stress to the process.

The thing to remember is that you cannot control them, but you can control your process, and one surefire way to set yourself back is by performing what is considered a Wrongful Eviction. Here are just a few things to avoid during an eviction so that you make sure to stay on the right side of the law:

  1. Never change the locks to the rental while the tenant is still occupying the unit.
  2. Never threaten or bully the tenant in any way.
  3. Never remove their property from the unit.
  4. Never shut off the unit’s utilities.
  5. Be careful about accepting partial rent.*

 

The Cost of an Eviction

Monetary Cost

Evictions can be costly with fees at every turn, loss of rent, and more. Even if you are on top of things and begin the eviction process the moment that your tenant is outside of their grace period for rent, you will still be out that rent plus what would have been owed for the duration of the eviction process. This could be anywhere from five weeks to three months.

On top of this you will have the court fees to pay. These can range anywhere from an average of $400 to $750 or more, depending on your state and local process, and that is just for the fees.

If you’re considering hiring a lawyer to help with the case, you may be looking at anywhere between $500 to as much as $5,000 if the tenant decides to try to contest the eviction in court.

If you let your frustration get the better of you and chose to wrongfully evict the tenant (also referred to as a “self-help eviction” because the landlord takes it into their own hands to force the tenant out without going through the legal process), you will find yourself back at the beginning of the process all over again, paying the same fees over, and possibly be required to pay the tenant’s fees as well.

Once you have won the eviction case, you are still not done.

There will be a time set by the judge that the tenant must be out by, but if they’re not, you may have to contact the sheriff’s office to have them escorted off the property. That could cost you around $50, depending where the rental is located.

Once they’re out, the cleanup begins. It’s a fair bet that if you have had to remove a delinquent tenant that they will not go to any great pains to leave the rental in the same state that they found it in. There will be tenants that may even leave some of their possessions behind, and in many states you are not allowed to simply toss or sell these items. You are required to store them for a length of time in case the tenant comes back to reclaim them.

You will also need to change the locks, which can range depending on if you hire a locksmith or do it yourself. With storage fees, cleaning fees, locksmith fees, and any repairs that you have to make to damages done, even if you have a security deposit from them you can see how it starts to add up in a hurry, and that’s after the eviction judgement has been passed and you’ve shelled out potentially thousands of dollars to go to court.

Other Costs

Evictions are expensive, though it’s not limited to a monetary expense. If you are a single landlord without the support of a property management firm behind you, you may feel overwhelmed by the stressful situation.

Evictions cost time, energy, and they take focus away from other things that need to be done.

You will need to set aside time for collecting evidence, for the court date, and all of the other little details you will need to make sure you have put together. If you have never been through an eviction before (or even if it’s just been a while), and you choose not to hire an attorney to help, you will need to make sure that you take the time to thoroughly research the laws in your area or you may find yourself right back at square one, which as we mentioned earlier, will cost both time and money to go through the process again.

You may receive phone calls at all hours from frantic tenants that realize that they’ve let the situation go too far and are now angry with you or they may shut off communication altogether, leaving you to worry about the state of your rental that they are still living in. Even if they are difficult to reach, you’ll need to make sure not to harass them, though, or you’ll open yourself up for trouble in the eviction process.

 

What Are Your Options?

All in all, evictions are a nasty business. The tenant is being forced out of their home and you are being put through the financial and emotional stress that comes with an eviction and finding a new tenant to fill the unexpected vacancy. If there is any chance that you can avoid the eviction, you should.

The first step to avoiding an eviction is a thorough, detailed tenant screening. This should include a credit, criminal, and eviction report to give you a well rounded view of the rental applicant’s history and reliability. You should collect references from the tenant, verify employment and income, and watch out for the warning signs of a potentially poor tenant choice.

Once you accept a tenant that has been vetted, you will need to make sure that you have a solid lease. You should never allow a tenant to move in without first signing the lease with them, legally binding you both to the landlord-tenant relationship and safeguarding your business. The lease will detail out what is expected from both parties, including rent, policies, maintenance expectations, etc etc… If eviction becomes inevitable, a solid lease will help you in the legal battle.

Your diligence should not end when the tenant moves in. You will want to remain aware of any signs that could give you a heads up that your tenant will break the lease. If your tenant cuts off communication with you suddenly or you see signs that they are making a move long before their lease is up but they haven’t said anything, you’ll want to be ready.

There may be select times in which it is more financially reasonable to offer to pay your tenant to leave rather than go through the eviction process. Depending on the situation and how much the tenant is willing to accept to keep their credit history in a bit better shape, this can prove to be a reasonable option to consider.

 

Conclusion

In the end if the tenant is costing you money and won’t leave you may not be able to avoid an eviction. It’s part of the rental business and managing your own properties. The key is to learn from the experience. Your first eviction process may feel like you’re shooting in the dark, but it’s a learning experience. Take a deep breath, do your research, speak to other landlords that have been through similar situations, and seek legal advice if you’re unsure of something.

 

* Some local laws may stop you from accepting partial rent during the eviction press or supplimenting that lost rent by subletting any part of the property

Is Your Rental Ready for Winter?

It’s that time of year again. The temperatures begin to drop and you’ll see the first flurries of the season.

There’s a dusting on the roofs, on the grass, and on the tops of the cars left out the night before. The snow can be beautiful, but as more and more of it comes, it can cause a real problem, especially if you are a landlord and property manager.

As beautiful as snow – and even ice – may look from your window with the fireplace going behind you, it can cause some serious damage if you’re not prepared.

Even light ice and snow, if it sticks to more than rooftops and the grass, can cause slip hazards.

If you own an apartment complex or have outdoor stairs of any sort on the property, they could become very icy and dangerous, leading to potentially serious injuries if your tenant or a guest takes a tumble.

Locks on the doors and gates might freeze shut, making it hard or even impossible for your tenant to leave the property.

Piles of snow may also keep them housebound, if their car is snowed in or if the snow is piled in front of the door so that they can’t leave.

Water in the pipes that freezes may cause them to burst and too much snow on top of a roof can, eventually, cause it to collapse in due to the weight.

In the same way, branches become brittle with too much ice weighing them down and can damage cars, roofs, or passersby that are unlucky enough to be walking under at just the wrong time.

Don’t let the dangers of the colder months overwhelm you. There are precautions that you can take both before and after the snowfall to protect your tenants, your rental property, and everything inbetween.

Preparing for Snow and Ice

While you likely won’t be in the home when the freeze hits, as a landlord and/or property manager you can prepare your tenants to take care of the rental for you.

Your lease should detail out who is responsible for what.

If you own an apartment complex, you are likely responsible for de-icing stairways, common walkways, and possibly even a parking lot if you have it.

If you rent out a single-family home, your tenants will likely be responsible for these things.

Either way, it should be detailed out in the lease from the beginning so that everyone can be on the same page.

Make sure to check your local laws (both state and county) to ensure that your lease matches up.

One of the first things you should do as winter approaches is to schedule a time with your tenant to drop by the property.

You’ll want to check the furnace, the smoke alarms, and carbon monoxide detectors.

You don’t want the heat giving out during a snowstorm or find that a smoke alarm or carbon monoxide detector has gone bad the hard (and dangerous) way.

When you drop by, you may consider providing your tenant with a written reminder of their responsibilities for the colder months.

Include tips and tricks that you have learned over the years to better help prepare for it.

If the temperatures are forecasted to drop below freezing that night, leave the faucets dripping. That will help to keep water moving through the pipes so that they are less likely to freeze. It doesn’t do you or your tenant any good to have a frozen or burst pipe. You’ll need to call a repairman and, depending on the pipe that burst, they may find themselves without water for a short time.

You may also want to detail in this letter (especially if it’s the first freeze for them in the rental) what you will provide and what you will not.

If they do not have access to snow shovels, you may consider having one that you can lend to them.

They should keep salt, sand, or even kitty litter to help melt the ice.

If they’re looking for a quick way to remove large areas of snow out of your pathway, consider laying out a tarp down before the snowfall starts to catch it. If this is done over a walkway or driveway, it can be moved the next morning after a heavy, overnight snowfall.

Snow shovels and snow blowers will also help clear walkways and driveways after the snow has fallen and keep the snow from freezing to the concrete.

Check with them to see if they have experience removing the snow.

If you have a snow blower that you’ve left on the property for them to use, make sure they are aware of both how to operate it so that they do not damage the machine, as well as best practices to make sure they remove the snow efficiently.

The last thing they’ll want to do is battle a snow blower first thing in the morning just so they can get to work and end up late because they weren’t certain how to use it.

Ways to Help Your Tenant

When applicants come to look at your rental to compare it to others in the area, you’ll want to make sure yours stands out above the rest.

If you live in a location where snow can become a real problem, this is a place that you can shine.

Check out the following projects that you may wish to consider to make your rental property more desirable, especially during the long winter months:

  • Make sure all doors and windows are sealed. Drafts caused by loose doors and windows can drive the electricity bill for the property up as the tenants attempt to warm the unit.
  • Update out-of-date heating systems. If the heating system in your rental still works, but not efficiently, you may consider updating that system. Newer units are less likely to break down in the middle of a freeze, giving your tenants an extra layer of security.
  • Clear the driveway. There are a few options here. If you live close to the rental and you’re a do-it-yourself kind of landlord, you may offer to help them dig their car out in the morning. If not, you may wish to simply have someone on hand to call for that. While it’s a nice gesture to have a referral for this kind of work, you may consider paying to have this done, adding an extra perk to your rental that may not be provided with another.

Winter affects parts of the country very differently.

While rentals in New England may have already seen their first big snowstorm and expect more to come, rentals down in Texas may simply have to take a few precautions on the occasional overnight freeze.

You’ll want to approach your own rental with your local climate in mind, but regardless of where you live, there will be steps that you need to take to protect your rental and the tenants that live there.

Where to Start: The First Steps You Should Take as a New Landlord

As a first-time landlord, you want to get organized from the beginning to make your life easier.

Once you’ve decided to take the plunge into owning rental properties, your next steps will determine your chances of success.

1. Utilize Property Management Software

Keeping records of all your payments and expenses is an essential part of being a landlord.

Tax time will go much smoother if you have organized data, and you’ll be more likely to increase your deductions if you have maintained your records all year instead of scrambling last minute to find receipts.

You may also use property management software to advertise your property as available on listing sites, send and receive documents, collect rent online, and more.

It often helps you streamline your process and limits the number of programs you use to keep up with the aspects of your rental business so that things do not become mixed up.

2. Learn State Laws

Take some time to read the laws on tenant-landlord relations applicable in your state.

While this may not be the most entertaining reading you could do, it will help you know what is allowable and what isn’t.

You don’t want to accidentally overstep your boundaries because you weren’t aware of current regulations.

Always keep in mind that while some laws are federal laws and will cover everyone, there are often state and even city laws that you will be required to know as well.

Make sure that you do not cut corners when it comes to keeping up with the legal side of property management.

3. Inspect the Rental Property

While you probably had an inspection completed when you purchased the property, you’re now looking at it through the eyes of a landlord and prospective tenants.

Consider updates that need to be made to attract tenants and keep them long-term. Look at the appliances and think about replacing them if they are older and not energy efficient.

Make sure the carpet or flooring is in good shape and that all windows and doors work properly.

Take a look at the exterior as well.

The outside of the unit will be the first thing that the potential tenant sees when they look over the property, and their first impression may be a deciding factor if they apply or not.

It will be easier to rent your property if everything is in working order and not too old.

4. Meet the Tenants

If you’ve purchased a rental property that already has tenants, you’ll want to make meeting them one of your top priorities.

Introduce yourself and make sure they know how to contact you.

Let them know if any changes will be made in the near future.

Having a new landlord can be a frightening concept for some people and may cause them to look for a new place.

To prevent this from happening, take time to get to know your tenants.

5. Be Insured

If you didn’t get insurance coverage as part of your purchase, make sure you do it now.

You’ll want to protect your investment in case of damage.

You’ll also want to maintain liability coverage for your property for injuries or damage to tenants or guests.

Even if you obtained a policy when you were financing the property, you may want to review it now to determine if you need higher coverage.

Also make sure that you have the correct coverage.

Some policies are meant for property owners that live at the property and may not cover damages if you are not a resident in that home.

Check with your policy and make sure that it allows for renters.

6. Determine Maintenance and Payment Schedules

Now is the time to set up a business that’s efficient and productive.

Decide who will be responsible for maintenance — whether you’ll take care of all issues or hire someone.

Set up a list of contractors and companies to call for various issues, such as heating or air conditioning, plumbing and electrical problems.

When you work with one company, it will respond faster when you have a work order.

You also want to decide about payment.Set up a payment system that works for you and your tenants.

You may want to hire an outside company to manage payments and late notices.

You’ll also want to have an accountant to deal with your finances if you have multiple properties.

You may even find it beneficial for your accountant to take care of a single property if you plan to expand in the future.

Start out your business on the right foot, and you can eliminate many of the problems landlords face.

You can focus on keeping your tenants happy or finding new tenants and making money from your property.

Guide to Screening Tenants

Bonus: How to Read a Credit Report

Choosing a new tenant can be overwhelming, especially if you’re a new landlord or have had the same tenant in a property for several consecutive years.

It’s always good to remember that while vacant properties cost you money, delinquent tenants can cost you more.

While renters are looking for the right property to rent, as a landlord and property manager, you are looking for the right tenant for your property.

Not every applicant will be right for your property.

That’s okay. Don’t get discouraged.

A good game plan will help you streamline the process and take some of the stress of choosing a new tenant from the equation.

Screening a Potential Tenant

Tenant screening is an absolute must when you are looking for a new tenant to fill your property.

If you skip this vital step you are opening yourself and your investment up to terrible losses that could severely hurt your income.

Knowing who resides in your home begins with an application.

You may choose to use a physical version that you can hand to the applicant when you meet with them or, more likely, an online version that allows you to save time and paper.

Gathering application fees to run full tenant screenings on every single person that shows interest in your property can be difficult and time-consuming, so begin with a prescreening.

This begins with letting your applicants know what your expectations are.

Your listing should include information such as the rent rate, smoking policies, pet policies, and any credit/income requirements that you may have.

Letting your applicant know these things up front shows them that you are going to be honest with them and will allow them to bow out gracefully if they know that they will not be the right fit for your property.

You should have all of your policies in writing and they must apply to all residents that apply.

Sticking to your policies that you’ve created will help to hedge against appearing as if you are discriminating against an applicant.

Meeting an applicant face-to-face allows you to handle several items of business.

As the second round of prescreening, it allows you a chance to ask questions, give a quick tour of the property, and collect the application fee for the full tenant screening.

While this does not always hold true, if an applicant shows up late, does not have the full fee on hand, or is untidy in their appearance, you may think twice about them as a future tenant.

Do keep in mind that just because an applicant appears to be everything you’d ever hoped for, this is no reason to skip the tenant screening.

It is your first line of defense.

A full tenant screening should include a credit, criminal, and eviction report.

This will give you a fairly well rounded view of the history of person that wishes to rent your property from you.

You’ll want to watch for negative tradelines that indicate late or non-payments, as well as bankruptcies and collections owed on.

When you read over a credit history it is always a good practice to look at the details and not focus entirely on the score or recommendation given.

Verifying employment and checking with prior landlords are also part of the screening process, though a tenant screening company may not cover these.

Even so, if your applicant passes the credit, criminal, and eviction check, you still should not leave these two things to chance.

The sad truth is that people do lie about their income and past experiences.

An eviction may not be on the records yet if it is in the process of being filed for the property that they are currently in or the landlord may have decided to take another route that might not show on a typical tenant screening.

Reaching out to employers and asking for pay stubs help to give you peace of mind that the applicant is gainfully employed.

Checking with prior landlords (usually two or three back) ensures that they are not trying to slip past your safeguards.


If you’re on the fence between two or three qualified tenants you may have a difficult time choosing between them.

Some landlords are turning to social media for an alternative form of tenant screening, but you should always be careful with this.

While it may give you a great outlet to check on an applicant’s lifestyle – are they partiers? Tidy? Slobs? – and if they have any pets that they may or may not have mentioned to you, a landlord or property manager should tread carefully so that they do not appear choose one applicant above another using something that may be deemed illegal according to the Fair Housing Laws.

If you choose to take this route, make sure you are up-to-date with all of the laws associated with it. Social Media is a great tool, but you don’t want to risk landing yourself in trouble.

Follow the Law

There are local and federal laws that dictate the process that you will need to follow to find, screen, and accept a tenant.

While the federal laws will cover the country, you’ll also want to check in on your state, county, and even city laws to make sure that you are fully informed.

Ignorance is not an excuse that can be used if someone claims that you’ve broken the law as a landlord or property manager, and it can cost you in money, time, and reputation.

These laws are meant to help you both, so being fully aware is a must.

They are consistently changing and updating to meet the needs of landlords and tenants and better help to regulate that relationship.

The Fair Housing Act touches on situations from the moment that you start marketing your property and all the way into the actual tenancy and was put into practice in 1968.

It has been updated as different situations arise.

On whole, it’s meant to keep people from being turned away from housing based on race, color, national origin, religion, sex, familial status, or disability, though some local laws will add to these, so it’s best to make sure that you are well aware of all laws that apply to your property.

You will want to be very careful in how you word your advertisements for your properties as well as what questions that you ask those that apply.

If you even appear to be leading them in one direction or another – for example, indicating that an apartment close to the playground would be better for the applicants when you find out that they have children and not offering to show other properties as well – that may be seen as discriminatory.

Refusing a disabled applicant reasonable accommodations such as a service animal in a property that does not allow pets may also be seen as discrimination.

There are also exemptions to the FHA that might com into play.

Once you have found an applicant that appears qualified and has passed the pre-screening, you will need to receive permission to run a tenant screening on them.

While criminal checks are performed on public criminal records, it is a good practice to be upfront and clear with what kinds of reports that you will be running on your applicant.

You will need direct permission to run a credit report.

Some tenant screening sites make it easier on you by reaching out to the tenant directly for this permission, but you may consider keeping a signed permission slip on file for your records as well.

State-specific documents such as these are easy to purchase and download online.

Finally, once you have chosen the best applicant to become your tenant you will sit down with them to sign the lease.

This is a legal document that should always be signed by both parties before the tenant is allowed to move into the property.

The lease will dictate what is expected from all parties involved so that if there are any questions at a later date, you may refer back to the document. 

This will be one of the most important ways (aside from the screening process itself) that you’ll protect your property and your investment.

It legally binds you both to the promises made and will help to simplify your landlord-tenant relationship.

Conclusion

Finding that perfect tenant can be stressful, but you’ll find the policies that work best for you with each time that you go through the process.

Speak with other landlords and ask advice. While learning from your own mistakes is a necessary part of growing your business, learning from others so that you can avoid the mistakes that they made is even better.

Choosing a great location that will appeal to the types of tenants that you’d like to attract, going through a full and detailed tenant screening process, and abiding by the laws set up to govern the landlord-tenant relationship will help set you and your new tenant on a smoother path and encourage a great working relationship.

Bonus:
How to Read a Credit Report

When you open your rental property up to a person it is safe to say that you’d like to know that you are making the best choice in the tenant that you accept.

You have gone through the first steps of the screening process: you have asked the interested individual to fill out an application, have spoken to them briefly about their qualifications, and have collected the screening fee.

This process has likely helped to narrow your pool of applicants down to a serious few and now it’s time to look over their credit and criminal repors.

If you are a new landlord or are switching the service that you use to run tenant screenings, you’ll want to make sure that the tenant screening that you order provides, at minimum, a full credit report and a nation-wide criminal check.

Some HOAs that your property may be apart of may require a certain level of criminal check to be performed in order to rent to an individual within that community.

Overall, it’s safer to conduct a full, nation-wide criminal search rather than rely on your applicant to provide you with accurate information of the areas that they have lived in.

A credit report may include somewhat varying information, but you should look for one that includes a credit score, tradelines, and public records (which should also include collections).

Below we’ll go through what is included in each of these, as well as a few other options you may wish to persue in a credit history.

For consistancy’s sake, we will be using LandlordStation’s sample report, though if you pull a report directly from a credit agency it may be formatted differently.

Credit Score

A credit score is provided by the credit bureau that the report is pulled from. For LandlordStation, this is Trans Union.

There are three major credit agencies in the United States, and while those scores may differ slightly depending on the information found in the agency’s database, they should be fairly similar.

Credit scores tend to range from around 300 to 850, though 800 is considered near perfect.

The tradelines found below the credit score will detail out what information the credit bureau has used to formulate the score itself.

Most tradelines will affect the score up to seven (7) years and will affect it less and less with each passing year.

In other words, if the year is 2015 a negative tradeline from October of 2014 will weigh heavier against the credit score than a negative tradeline from October of 2010.

Score factors are often detailed out next to the score provided.

These are notes that the credit agency will provide that explain what went into their calculations.

There will be times that no score is provided.

If a score cannot be calculated, this often means that the individual does not have an extensive or recent credit history.

Individuals that pay in cash, do not use credit cards, and do not take out loans will likely have a very bare credit history and a score may not be available for them.

This does not necessarily make them a poor canidate, though you may wish to focus more on other forms of screening (such as references and their criminal and rental history).

If your applicant claims that they should have a credit history or they find a discrepency in the history that was provided, they should contact the credit bureau immediately.

Credit Summary and Tradelines

A credit summary will be where you will see the summarization of the different items found on the credit report. The tradelines will be the details of that summarization.

There are five (5) catagories under the summary on LandlordStation’s credit reports.

1.    Closed with Balance – This will be a summary of any tradeline that was closed with a balance still open. It may have been a loan or a credit card. The reasons that it was closed before it was paid off may vary, and those details will be found in the tradelines.
2.    Revolving – A revolving balance will change. This is not a set amount, such as a loan, but one that is often being paid on and added to such as a credit card. The important thing to note here is the percentage of the debt that is being used at any given time. A person who have been approved for $100,000 of revolving credit and is using $10,000 is in a much better position than one who is approved for $5,000 and is using all $5000 of it.

3.    Installment – Installment balances are lines of credit that will be paid in installments, such as an auto loan or a student loan.
4.    Mortgage – Lines of credit for a mortgage stand apart from other installments.
5.    Open – The open category is simply anything that is still active and has not been shut down either by the creditor or the invididual that the report is being run on.
Under the summary the individual and total amounts will be listed for the balance, high credit, and monthly payments.

Tradelines will provide details on the information under the credit summary.

Each tradeline (both open and closed) will provide information on the name of the creditor, the loan type (ie if it is a credit card, auto loan, student loan, etc etc), current rating (meaning if it is currently being paid on, if it is late, etc), the balance, if any money is past due, and what the credit limit is. It will also note the high limit, meaning the most owed on that tradeline.

This will include any fees associated with late dues.

Dates will be provided for when the tradeline was opened, closed, and also when it was most recently reported to the credit bureau.

Collections

Collections are lines of credit that were shut down by the creditor and the debt was sold to a collection company.

The collection company may be awaiting payment, and if so it will be noted in this section of the credit report.

The collection section of the credit report will note the name of the original company owed, the balance owed (this should be looked at for the current balance over the ‘past due’ section), the high credit, and the agency that currently holds the debt.

The collection will have a date opened section that will show when the tradeline was placed for collection, and if it has been paid and closed it will note that next to the open date.

If the collection shows a balance and does not have a paid or closed date, it likely is still an outstanding debt owed.

As of 2014 medical collections do not impact a credit score as heavily as other collections might.

Public Records

Public records will include any legal proceedings that affect the applicant’s credity-worthiness.

This may be a civil judgement, a tax lien of some kind, or any number of things.

These are all considered negative marks against the applicant’s credit history.

Other Options

Some credit reports will offer various other options such as previous address history, known aliases, and employment history.

This information can be vaulable when fact-checking your potential tenant, as they will often provide this information on the application that they bring to you.