Nathan M

If you've been a landlord, or broker managing someone's properties, for any amount of time one of these stories might sound familiar to you. A common myth landlords often have is that general repairs are going to be their biggest expense with a property, aside from the obvious tax+mortgage payments. That is very very wrong. The largest expense for most landlords is actually what they typically consider their biggest asset, their tenants! Not all tenants, but based on some of the info I'll elaborate on below, a single bad tenant can turn a property that's been wildly profitable for 10 years into a loss really quick.

The tales range from losing a single month's rent to losing a year's worth of rent, or more. Read the comments below and conclude for yourself. Then keep reading to determine how to avoid these catastrophes with your own properties.

Tenant Protection Laws
"The absolute worst experience we ever had was two college students referred to us by my husband's uncle. They trashed the place, stopped paying rent after the first two months and were really, really difficult to evict because it was winter, and at that time the state had laws protecting tenants from being pitched out into the cold. The final insult, of course, was that when they did sneak away in the dark of night, they turned off the heat but not the water -- so we had frozen pipes to deal with on top of the garbage and filth."

Never ever again..
"My boss has a rental that I got put in charge of, and I will never do that again! It was an older couple with their 20-something-year-old daughter, and they lived in filth. They had two dogs, one cat and a chicken that all lived in the house. I guess the animals didn't like to go outside, so by the time they finally moved out there were mountains of dog, cat and chicken poop in the house. We ended up having to go to court to get them out and then go to court again to get two months of rent and more of a deposit."

Drug use and damages
"We had druggies (highly recommended by family/friends in our church!) who glued pennies to the walls, stuffed Cheetos into the shutters, stapled small pieces of cardboard to the inside window facings, disassembled the outdoor flower bed and brought all the bricks inside the house, poured water into the floor furnace, causing it to rust out (we have a 1928 home in Tulsa, Okla., which was beautiful), used the drapery for cleaning rags, used wood staples to anchor a large, outdoor inflatable toy inside the living room and left their drug paraphernalia in the closet when they moved. We've spent thousands in cleaning and replacement costs."

Smoke damage and dead yard
"Rented to a well-to-do couple with a 2-year-old, solid references (so we thought), and we paid a rental agency to monitor the property and collect the rent. These people paid on time. However, they had a kitchen fire due to the stove being so filthy, thousands of dollars in smoke and fire damage, completely melted the door off the microwave, wouldn't set up the sprinkler-system timers to water automatically, so the entire yard died, completely tore out shrubs and cracked the upstairs master-bath sink washing a bowling ball. They didn't have a diaper pail, so they just tossed the wet diapers (from second child born while in the home) in a corner on the carpet of the baby's room (gag), took every window covering and tore out the alarm system contacts on all the windows. My favorite one: They drove their car through the wall in the garage into the downstairs guest bathroom. All toilets in all three bathrooms had to be replaced because they were stained black. Never could figure that one out."

Drug manufacturing
"I had rented to a mother and two boys (ages 3 and 7) who were supplied to me by the Department of Social Services. They were on a plan (two-year max) to help down-and-out single moms/dads get on their feet. I thought this was a good plan. Then the constant traffic started coming to the house apartment: 10 p.m., 1 p.m., 2:30 p.m., 6:30 p.m. The smell from the apartment was horrible, and I eventually found out she was making and selling crack cocaine from my apartment."

These stories I found on landlord discussion forum are mild in comparison to some of Robert Kiyosaki (Rich Dad Poor Dad guy) stories. He talks of some severe liabilities into the hundreds of thousands of dollars landlords sometimes find themselves in. For instance, is a property you rent is then used to create meth, in some instances it is required of the landlord to strip the walls, flooring, and anything else that may have come in contact with the meth product or fumes and replace it all. That's tens of thousands of dollars in most cases.

While a typical bad tenant might skip out on a month or two rent or cause some light damages, the really bad ones create problems like you just read about here; sometimes worse. These expense range from a few thousand dollars to five, and sometimes six digit figures in extreme cases. Take even your most profitable property and assume you loose 3 months rent from a long eviction process; subtract a $3,000 loss from it, is it still profitable? Take the same property and place someone who destroys the interior; subtract a $9,000 or $15,000 loss from it, is it still profitable? What about a $30,000 loss if you end up with a meth lab inside your rental?

These are of course nightmare scenarios for landlords, and for most it's the exception rather than the norm. But this economic climate has put a lot more people into desperate situations. This means, more renters that would have been ideal are skipping on rent, or causing losses of 3-9 months for landlords after forcing them through the courts for eviction. Even more tenants are picking up drug use, or even drug manufacturing habits to provide for their family. All this spells trouble for landlords.

This all paints a pretty bleak picture doesn't it. It doesn't have to be that way. Do your due diligence BEFORE renting to a new tenant. Run a complete background check on all adults, and check their existing living conditions wherever they live now. It's absolutely vital to move in only quality tenants, because we are all far better off leaving a property vacant for an extra month and taking the time to get a better tenant than risking losing far more with a bad one. Read up on how to properly screen a tenant before moving in your next tenant. Maybe even check-up on your existing tenants if you didn't screen them properly in the first place.

--- about the author ---

Rentec Direct provides property management software free to landlords and property managers. Because of the importance of thorough screening for prospective tenants, we have integrated tenant screening directly into the software so in just a few clicks a complete and comprehensive background check including previous evictions can be done on any new tenants.

Did you know that in a brief survey I've found that 9 out of 10 landlords do not properly screen their new tenants? Granted, the term "properly" is somewhat arbitrary. Here's how I define a proper tenant screening.

First and foremost it's absolutely vital you know the criminal history of your new tenants. Do you want the liability of renting to a convicted felon in your property? A proper background screen will give you address history for your new tenant, which is good for verifying the legitimacy of their application as well as knowing just where to run criminal background reports on. Did you know the typical "nationwide" criminal report is simply a compilation of that particular screening agencies information? More often than not it seems, those nationwide reports do not include any records. That's why you see "no data for subject" so often when running them. For this reason it is absolutely vital to run the background reports based on the address history of the subject.

The second thing I want to know is has this tenant ever had any judgments, liens, bankruptcies, or registered evictions. If they rented in the past and defaulted or caused a hardship on a previous landlord they most likely have a judgment or eviction filed against them. If bankruptcies, liens, or evictions show up in the tenant history it also gives a good example of how responsible they have been with their bills in the past as well. If evictions show up, you know it will take an act of the courts to get this tenant out if something happens during their tenancy.

There are a couple really cheap supplemental reports which are optional, but often a good idea. Performing a SSN validation usually only costs a couple dollars and confirms this person is who they say they are. A good SSN validation will also include complete address history. You can also search the federal government maintained terrorist database if you are so inclined.

Running a credit report used to be on my list of must have reports; however, rules have recently changed which prevent private landlords from running credit reports. If you have the ability, I find verifying a tenant's current bills, including their new rent payment, vs their income is useful to see if they can afford to rent.

So why is it that 90% of landlords aren't properly screening their tenants? It usually boils down to choosing the wrong screening vendor, or product. From my research, most landlords run what is usually referred to as a "nationwide criminal" report because it sounds like it searches the whole country, and usually is fairly cheap. The unfortunate part is, these reports often do not do an exhaustive search of every state's records and therefore do not have complete or accurate results. They more often than not are very old databases as well. It is vital to know your tenant's address history so you can choose the correct databases to search.

The second important thing to know is if the records you received valid. If you receive a hit on a statewide search, it is absolutely critical to check with the county in which the record originated to ensure validity. In fact, a landlords use of non-public information is dependant on this step. You must verify a record with the county prior to using the information as a basis for rejecting an application. Your screening agent should be able to do this for you.

Finally, one last critical point to address. Run background reports on every applicant. This includes husband, wife, roommates, co-signers and anyone over the age of 18 who is going to be living in the household. Most landlord charge an application fee per-person to cover these expenses. It is completely expected nowadays.

--- about the author ---

Rentec Direct now offers complete tenant screening integrated into our already popular property management software! We provide you by default our Intellisearch query which, at no cost to you, searches your prospective tenant's address history and tells you which reports you need to run to get accurate results. We back it up with statwide criminal comprehensive searches, county level queries, judgement, liens, and eviction searches, as well as an array of important supplimental searches. We also are offering 30% off regular pricing which makes Rentec Direct's tenant screening the most economical choice available!

We've added some great reports, based on user feedback, to Rentec Direct. These new reports are available to Rentec users today, even within Rentec Basic which is abolutely free to landlords, property managers, and brokers!

• Account Summary - See all of your banking accounts in one spot with their total income, expenses, and balance.
• Property Summary - See all of your property accounts in one spot with their total income, expenses, and balance.
• General Ledger - Customizable general ledger report by property or account. Fully sortable by your own custom dates.
• Current Deposits - Quick report to show you deposits held per property.
• Lease Expiration - Quick report to show you which properties have leases and when those leases expire.
• Rent Roll - At a glance report of properties and tenants, their rent due, and current balance.
• Vacant Properties - Quick report to show you all vacant properties.

If you are not familiar with Rentec Direct, we have one of the most easy to use and robust property management software applications in the industry. The application is web based which means, just like ActiveRain, it works from every type of computer, and works on any connected computer in the world.

Companies like Rentec Direct property management software are innovating the web with the latest technology to make online applications more usable.

Done properly, like in a typical windows or macintosh appliation, right click menus can make an online application far more useable and more feature rich. It comes down to managing screen realestate. Web browsers only have so much screen realestate to display and therefore online applications are typically limited in their feature sets by the amount of space on the screen.

Right click menus, in our use case, replace the need to display options right within the different pages of the application. It's a rare occassion that when using property management software do you move-out a tenant, so that functionality is then built into the right-click menu because it's an infrequently used function. Same goes for deleting properties, and other less frequently used clicks.

On top of the other benefits, a right click menu allows for less mouse movement. It may not seem like "a lot" of work to move a mouse from one side of the screen to the other; however, when using an online application frequently, or perhaps for hours a day if you manage a lot of properties, those milliseconds saved for each click do actually make a noticeable improvement in productivity. Every improvement in efficiency helps when an application is used frequently. Especially for nested options that may have earlier taken 2 or 3 clicks, which can be displayed and made available right from the front page via the right click menu.

For an experienced web application designer, this functionality is easy to integrate. It doesn't have to be done by scratch because the programming has already been done. Tools such as the jQuery plugin called contextMenu make it very easy to add right-click functionality to any website.

Opinions? How do AR members feel about having right-click functionality on web apps?

Be forewarned, this post isn't a get rich quick idea, or a magical formula to turn straw into gold. Not much comes without some hard work to even the best of us these days, not since at least 2005 that is, when phantom property values topped out.

What I am suggessting is that investment realestate owners who are looking at their bottom line closely these days absolutely have a choice to save $100, $200 or more per month right away! To get to the point, I'm talking about property management. Take the following very short quiz:

1. Do you live within 30 minutes of your investment properties? Yes/No
2. Can you balance your own checkbook? Yes/No
3. Do you have a computer with a printer, or typewriter? Yes/No

Did you answer Yes to #1? If so you are an excellent cantidate. Items 2 and 3 are optional because there are other tools to get around those, but I trust anybody reading this article has 2 and 3 covered anyways.

Investors are often giving up to 15% of their PROFIT on their properties away. I'm certainly no exception, I used property management for years. Right before I chose to discontinue their services, I discovered what they really do. They place tenants, collect rent, post notices, and take care of repairs. Most property management companies charge very expensive placement fees for placing tenants, and I know many successful landlords who know how to place a classified or craigslist ad and often fill their units quicker than property management ever did. Collecting rent is easy, posting notices is just as easy, and repairs can be handled extremely cheap with all the out of work professionals in the country.

There's some that mistakenly believe property management companies take on some or all of the liability of a property owner. This may well have been true in the past, but not so much anymore. Every property management contract I've seen in the last 3 years has defense clauses in it that state not only are they not assuming any liability, but if they get sued by your tenant, you must pay for their lawyer as well. Check your contract.

I missed on important item above. You know that monthly statement you get in the mail from your property management company. I used to love those things! At the end of the year I could just hand the December statement to my CPA and thats all he needed for my Schedule-E on my federal taxes.

OK, here's the plug, not just for our software, but almost any property management software. If you answered yes to #1 up there, then a good property management software like Rentec Direct can help you with all the rest of the items.

Placing Tenants - Rentec Direct, and other services can give you instant tenant screening results and also help you place property ads online for greater visibility.

Collecting Rent - Your tenants can drop off a payment to you or mail it to your address just as easily as they can send it to a property management company. Your property management software will help you keep track of these payments and who's do when. It will also keep track of late fees.

Post Notices - Notices can often be posted on the door of the tenant and/or mailed to their address. There are plenty of free resources online for notice templates. Sending them is just the cost of a stamp. Keep track of the times/dates in your property management software.

Repairs - Open up craigslist and post an ad for a handyman, or a specialized professional for your repair needs. With this economy, or even when times are good, there is always somebody responding to these ads. They go in the gigs section of craigslist. You'll probably find someone you like and continue using them for years.

Monthly Report / Taxes - A good property management software like Rentec Direct will provide these reports to you monthly, or whenever you need. Additionally, there's a specialized form designed to track tax deductable expenses automatically that you can print out at the end of the year and just hand to your CPA.

So while some investors have a legitimate need to hire property management, or just like giving money away, others have a choice to manage their own properties. With a good software application to help out, I've found it's hardly any more work than managing a property management company. In most cases because you become materially involved in the property management yourself you get significant additional tax breaks as well. Some of us only have 10-15% profit in an investment property, lets keep it!

p.s. Before taking my advice, check your property management contract for terms and exit costs.