Ep004: How to Choose the Right Tenant for Your Rental Property

Chris: Chris McAllister, here with the Landlord Profitability Playbook, where it's my job to create and coach business opportunities and strategies that support and add value to the lives of residential real estate investors and their tenants. And I'm here today with my good friend, digital marketing expert and podcast partner, lacey LeBlanc. And today we're going to talk about how to choose the right tenant for your rental property and the strategic and tactical steps that you can take to ensure that your tenants not only pay the rent on time, but leave the property in as good or better condition than it was when they moved in. When it's time for them to move on.

Laci: This is a big one, chris, the Lord's work that you're doing, the Holy Grail that you're chasing as we speak. In my Facebook inbox right now, there are 228 messages about one of my family's properties that's up for rent. I can't imagine how many phone calls Nana has gotten about it. On top of that, plus, it's the third time this year that this particular property has been vacated and needs to be re-rented. So if you can help landlords choose the right tenant, then you deserve a cape and a spandex suit and the whole nine, and I will buy it for you if you'll promise to wear it. But let's get right into it. So, in your experience, what is rule number one? What do landlords need to understand first and foremost when setting out to find a tenant?

Chris: I think the first thing that people have to keep top of mind, that landlords have to keep top of mind, is that there is a tenant for every property, and that tenant may not be you, and sometimes it's a certain mindset that we investors have to sort of get into to understand that it's okay that a property that you're renting out wouldn't necessarily be someplace that you would want to live.

Okay. So just because some neighborhoods may not be ideal places where I want to live or you'd want to live, I can tell you that there are tenants out there who will be thrilled to rent your place, especially if it's priced right, it's clean and it's functional. So those things take a paramount to everybody. But those of us who are, I guess, more fortunate than others don't really have to be conscious of that. But if we can provide anytime, we can provide a property that is functional, you know works, etc. If the house is clean, you know, maintained to the neighborhood standard and so forth, then that is a great opportunity that you as a landlord are providing. And just because you wouldn't necessarily live there doesn't mean that somebody else wouldn't be thrilled to have it.

Laci: And that's a really great point. Somebody else is going to be really proud of that property, proud of that space and finding that person that I think that goes back to them leaving it in better shape than they found it and paying their rent on time because they appreciate it, they're proud of it, they that's their spot right that there's a tenant for every property. I think that's a really great way to think about it. Can you provide us any examples maybe, of some neighborhoods where you have properties and and talk about maybe how you chose that neighborhood, because I feel like it's not where you would prefer to live? Obviously, if you're choosing your own home, you've got this set of criteria, but as an investor, if you're choosing a property, maybe in a neighborhood where you wouldn't live, what is, what's that criteria? How do you choose that?

Chris: You know, as investors we may have a personal lifestyle that we're accustomed to, right, maybe we wouldn't want to quote go down market and price or where we want to live, but by the same token, you could argue that we may not be able or maybe not want to afford to go upmarket right price either, and at the end of the day, I'm not sure it really matters. Right, you know, a good investment is a good investment regardless of the size of the investment or the target tenant. What counts is the return that you receive on that investment right. We have owners and I have properties you know that are, quote lower end properties that you know rent for you know, as little as five, six, $700 a month. And I have other properties that rent for 2000 plus a month.

You know, I feel like they're all good investments based on the rate of return I get. But obviously the dollar cost to get in to that investment, you know, was lower on some, higher on others. The return as a percentage tends to stay constant, you know, regardless of whether it's a higher end or a lower end property, and there's also times when you know a lower end property may not have a greater return but it's still appreciating right. Just like a higher end property may not have the same return versus another, as long but as long as it's still appreciating, you know, at the end of the life of that property it's all good.

So again, does it really matter where we choose to make an investment? I say it doesn't. The trick is that we bought it right, that we manage it right, we maintain it right and so forth, and the key is that when you do make a purchase, or when it's time to reevaluate a purchase, that you get really clear on who is going to rent that property, what's that avatar look like and what does that tenant for that property? What did they expect? So you know, despite any mental blocks or reservations we might have personally about living in one of our properties, tenants are going to be willing to rent that property as long as it's, again, reasonably priced, good condition, working utilities, amenities and so forth.

Laci: Yeah, where I am, the housing market is just, it's a bear. It's hard for folks, especially folks on a budget, people who are kind of in this lower income. We just don't have a lot of housing available. So we've got tenants out there who are willing to forego good condition and has working utilities and amenities, as long as they got the reasonably priced part. But how does the condition of a property, how it's priced, how it kind of meets the needs, how does that influence the willingness of tenants to rent in a specific area?

Chris: Well, everything comes back. Like we talked about the last couple of episodes. Everything comes back to that concept of the neighborhood standard. Right, if your property meets the neighborhood standard, right, if it's as good, marginally better, but at least as good as every other property you know in the neighborhood, that's going to be more than acceptable. So if it meets that standard it's fairly priced, meets the tenants, basic needs, functional, etc. You know you're going to find somebody and not just someone. If you've hit the neighborhood standard, if it's fairly priced, you're not just going to have one qualified applicant, you're probably going to have more than one qualified applicant to choose from. You know the neighborhood standard.

I just want to make this clear though right, we're talking about something priced right, and you know my philosophy is if the right price, say the average price or even the medium price of a given neighborhood is, you know, $1,000, you know a month for rent, if you can afford to comfortably rent that house for, say, 900 or 950 and it's the same house and you can afford to just be a little bit under what the average market value is, that is a great tactic to be able to attract more qualified applicants. So we're going to talk more about that in a few minutes. But the other thing I want to make clear about the neighborhood standard is not something that we get to command more rent for. The neighborhood standard is the basis for market rate rent as well as the value of that property in that neighborhood. We've talked about this before, but a common investor mistake when they purchase a property is not to account for the cost of initial repairs or the big ticket items that come up every 5, 10, 15, or 20 years.

And, as successful investor has to have their numbers clear enough that they're able to accumulate reserves out of whatever rent they're collecting After they pay the mortgage, after they pay the taxes, insurance, etc. They have to be able to accumulate reserves over time. So when it comes time to replace the roof since it's a non-event, because just because you replace the roof doesn't mean that $1,000 rental property is suddenly worth $1,100, $1,200 a month. It doesn't matter. The market doesn't care, your tenant doesn't care, the tenant, you can't expect the tenant to overpay for a property just because you didn't set enough money aside to get a roof put on there.

Laci: So your poor planning is not my emergency situation.

Chris: And that's why we love to help people manage their properties profitably. But we also are pretty darn good at helping and try to help to figure out exactly what the financials are going to look like, going forward and making sure that there's enough room in there to accumulate reserves over time. So when the big ticket items come up whether it's a sewer line, roof, whatever it is, new air conditioner, new heating system that it's a non-event Because, remember, a problem is never a problem if you've got the cash to fix it.

Laci: And that prevents so many future problems. And I've seen it again my real estate experience is adjacent, right, my family's experience. But if you have to increase the rent to cover the cost of a repair you just made, then how is that going to impact repairs you have to make in the future? That's the start of the snowball, of kind of falling below the neighborhood standard. Not only that is your tenant going to call you when something's wrong, if they think that you're going to raise their rent if you come and fix it right, and so then you get stuck with a tenant who is scared to call and something could be minimally wrong on the outside, but it's really wrong on the inside.

So they see a little spot on their ceiling. But what does that really mean? It could really cost you a lot more in the long run. I guess is what I'm trying to say.

Chris: It's an interesting point because I hadn't really thought of that, but I ventured to say that your tenants especially tenants that tend to rent for their lifetimes versus owning I bet you they have a pretty good sense of whether or not their current landlord is financially fit, and what you said is a great example of what financial fitness looks like, right? I mean, if every time you have a legitimate issue, the rent goes up, that's a problem with your owner and that's not a problem with you as a tenant.

Laci: But yeah, I mean as a recent renter, more recent in my history than other folks. I think that you're right. I think we do know about the financial fitness of our landlords based on the response to when we call. So it's nice to have. I think I've always thought my Nana would benefit from a property manager. Of course it was me calling my brother or my father who was busy with other things and that you know, if it wasn't the house falling apart, then I would be fine. So maybe I don't have the exact same experience, but I do think that it really impacts the overall relationship to which, when you think about things like are they going to refer to you if you have another house? Are they going to say, oh yeah, you know, definitely rent from them, it's a great experience, or, you know, it really can weigh long term, I think, on your reputation as an owner or manager.

Chris: Absolutely, and we've got you know we do. We manage for other people. We don't own the properties that we rent, but many times if it's time for somebody to move to a bigger place or maybe move to a different neighborhood, school district or whatever, they will ask us can I stay with John, for instance, can I stay with so and so you know, because they've enjoyed living there. So there is that referty and sometimes a long term tenant means a long term tenant amongst multiple properties, not just you know one of your properties.

Laci: Yeah, that's a great point. That's a great point. So what other factors should landlords consider when they're screening tenants? So this is a big part of it, right. Like I said, we've got 228 tenants who are chomping at the bit to get to this one one apartment. So what other factors are there when you're screening tenants to ensure that they will take care of the property? Are there any from your experience? Is there anything specific expectation wise or their criteria that landlords should communicate during that process to kind of let people self select? I guess.

Chris: Yeah, I think you have to have some basic expectations for your tenants as much as you have basic expectations for yourself as a landlord.

But you know, once you've got a property that's move in ready, it's clean, it's secure, it's price straight, you're going to have more applications that you can handle maybe 200, right, and you're going to need to screen those tenants to make sure that you're choosing someone who isn't just going to pay the rent, but they're also let me rephrase that you want to rent to somebody that doesn't just have enough cash for the first month's rent security deposit.

You want somebody who will have the first month's rent security deposit and be able to pay the rent on time every month and take care of the property. Right, and sometimes I think we get so caught up in the moment, under so much pressure, that it's easy to forget excuse me, what we really what good tenant performance looks like. Now, I absolutely believe and you know I don't think it's magical thinking, but I do believe that if you take care of your tenants and you choose your tenant wisely, that you're more likely to end up in a situation where you're going to save a ton of money down the road because that tenant is going to care for and they're going to respect your property. So you can call it magical thinking if you will, but you know we've got years and years of success of us taking care of tenants and the tenants taking care of us by way of taking care of the property. So those basic expectations, they really do matter.

Laci: Yeah, I think that's just the general psychology of reciprocity If someone is good to you, you want to be good back to them, and there's no, there's not necessarily a balance sheet for that, but I think you know we can all agree that if somebody's good to you, then you want to be good to them, barring extenuating circumstances. So the other issue that we have is you know when and this doesn't happen with a lot of our properties, so this is new to us and this is coming at a really great time but between tenants, right? So this property I'm talking about has been vacated now twice and will need to be rented for a third time this year. So what are the? What do you do between these tenants? What are the repairs that you need to make? What can you expect? I guess, are there unexpected repairs that could be avoided if you choose the right tenant next time?

Chris: Well, we've always we've all had horror stories, and sometimes horror stories happen when you've done everything right, you know. But you know we've always. We've all heard stories and landlords who you know a tenant moves out and they just discover a massive catastrophe. Right, I will tell you, though, that most of the time, you know, you can see a catastrophe coming just based on whether the rents paid on time and even quick drive buys, you know, by the property right, either by you or your property manager. But let me tell you what won't happen when it comes time to turn a property, you know, if you have a good tenant. So, first of all, a successful tenant is not going to let the lawn be overgrown right, you know we've had turns where the lawn is so overgrown that you know it takes a bush hog and a crew, you know, to get the backyard cleaned up and stuff. So a great tenant isn't going to let the lawn get overgrown. A great tenant isn't going to require insect or rodent treatment, right, you know, provided they moved in and the place was perfectly clean, great tenants aren't going to destroy the carpet, they're not going to put holes in the wall. They're not going to let garbage build up. You know they're not, they're going to pay the water bill, right? You know, water bill goes with the property. You can put it in the tenant's name, but if they don't pay it, it still stays with property and comes back to the landlord.

You could argue that successful tenants don't let their kids flush toys down the toilet. Right, there's certain things that a good tenant, a respectful tenant, a tenant who's respectable of the property is not going to do. That or going to directly translate the money that you're not going to have to spend when it is time for them to move out. You know, there's always something that has to be done between tenants. There's always basic wear and tear. You know, good, solid cleaning and nothing else but a tenant who simply lives up to the basic expectations. That alone is going to cut your maintenance and turn costs down the road dramatically, exponentially I would even say.

Laci: Right. Yeah, it's like a chicken and an egg scenario. If you provide a crappy property, then the folks who are going to be willing to live there, you know, are probably not going to clean it up and make it better. Most times, if you provide a good, clean property that works, then the motivation to keep it that way is high, I imagine. So what I'm hearing, though, is that, you know, in order really for any of these things to happen to let the lawn get overgrown, to have insects or rodents everywhere, carpet destroyed, holes in walls, garbage buildup there's a kind of a lack of oversight, right, the lack of participation on behalf of the owner, of the property manager, because some of those things you can see literally from the road right. Other things you know. If you're in there doing basic maintenance, then you know on a regular basis. Then chances are you're going to notice some of that stuff before it becomes a really big problem.

So it sounds like kind of just being involved in a basic level of participation is necessary.

Chris: Yeah, and throughout the life of a tenant you know the life of police there are various red blacks that come up, whether it's the maintenance guy seeing something when they're in there, whether not to rinse late, whether or not the grass is being mowed, you know, and a good property manager is going to be, I guess, aware, conscious of those, receptive to those red flags, and be willing to practically do something about it before things get out of hand. So that's an excellent point.

Laci: Yeah, just a basic level of involvement and not cutting corners, I think. I mean we're talking about landlord profitability here, right, so we're talking about the we want to be profitable above all, right, it's all. It's nice to talk about these touchy feeling like we want to provide a safe space and we want to, but really the bottom line is, how does it impact, you know, a property's condition, not only their condition, but the landlord's financial stability? How does it impact? How does choosing the wrong tenant kind of negatively impact your bottom line as a landlord?

Chris: You're right. We've talked about a lot of upstream things, we've talked a lot about strategic things, but now let's get down to the challenge of those 228 messages in Facebook about the vacant property that Nana's got right. I mean screening, attracting the right tenant to a property and properly screening them. That that is the challenge. You know, as you know almost every market right now, especially if it's an affordable property. You're going to get unundated with applications and the thing that is really tough and where it takes time but it's hard to sort through, is that many of those applications are going to be from people who are in the process of being evicted and have nowhere to go. Some are unemployed, some are just desperate, and there's probably a few of them that are, you know, basically criminals that have never, you know, finished out a lease in their life. That's a little harsh, I guess, but you've got a lot of people in that 228 that aren't acceptable applicants or qualified applicants, and it's your job to cast a wide enough net to capture not only the unqualified but that the qualified are in there as well. And again, if that's not enough, the unqualified are really good at getting your attention, because they're the ones that will tempt you with cash, and it's always cash right. I've got the cash right here, you know, for the first month's rent and security or whatever you're asking for. The problem is, you know that's the only cash you're likely to receive. So thinking about how to pick a good tenant or the right tenant for your property isn't about whether they can pay the rent and for or not. Of course that goes without saying. So there's screening that has to be done, you know, and we'll talk about what our process is. But you know you've got to make sure they're employed, we've got to see pay stubs, et cetera, et cetera. So the goal is, when we get through that process, that you feel confident that the person, or the handful of people that you narrow down to choose from that, every one of those folks, hopefully, will give you the confidence that they're not just going to pay the rent but they're going to again, at the end of that lease, leave it in better condition than when they found it.

And let's talk about affordability one more time. You know it is important to choose a tenant that can not only pay the rent but, I daresay, can do so comfortably right. So again it goes back to the neighborhood standard and what market rate rent is. But you know, if you've got a property that everybody else is a thousand bucks and you can afford to rent that for 950, and that tenant is comfortable based on what you know their income and expenses are and so forth, you know that's that's going to help you in the long run.

It's not a good sign if your tenant is stretched too thin when trying to pay the rent. You know, mathematically, based on our standards, you know which are generally. You know tenants have to show that they make three times the rent amount minimum after taxes. But of course that can be variable based on what other obligations they have. But mathematically, based on our standards, tenants who are comfortable paying the rent are more likely to leave their properties in better shape than when they found it Because, quite frankly, tenants, tenants, know if they're overpaying. They usually know when they sign the lease and they sign the lease because they don't have any choice. But I guarantee you, you know anybody who feels like they're being taken advantage of they're going to resent it. And I can tell you, more often than not the people who resent overpaying for a property take it out on the property.

Laci: Yeah, I think that's another really great point, and I think you know nobody's making a list of all their tenants and saying, and has a checkbox next to them did they leave it in better shape than they found it? Yes, yes, yes, no, yes, yes, yes, no. You know, chances are people aren't running pivot tables on all the different factors that come into play when you're screening a tenant or when they're leaving, or but. So the best way to figure this out, especially for folks who only own one or two properties, maybe, or a handful of properties, is to take it from experts who manage a bunch of properties like you guys. Right, you guys can see the patterns. You can look at a wide variety of properties in a wide variety of areas you know, owned by a wide variety of people and rented by a wide variety of people, and see the patterns about. You know what a good tenant looks like before they sign the lease, while they're in the property and, honestly, you know when they leave.

So I think it's really, it's really exciting to have this resource in a property management organization like yours, who is sharing this information. So I just think I think that's great, because people just don't have access to it and it's not like you can just Google it.

Chris: So what we should probably do. Well, we don't use paper applications anymore, but we can certainly share the paper applications that we've used in the past and get them out on the blog so people could take a look. But all of our applicants at this point apply, you know, via the web or the app on their phone, but you know when we're talking about. So let's assume for the moment that you have a comprehensive application that people can fill out, right? So what is it? What is it that we look for? What is it Do I suggest that you look for? So you know, you've got 228 people that you need to get through in Facebook. So the first thing that you need is to verify that these people make and this is just a basic standard. It could be different for you, sometimes it's different for us, depending on the owner but that they make. The tenant makes at least three times the rent amount, including any pet fees. I would even add in if you're having a pay for water or any additional utilities, it's three times the total rent amount after taxes. And the only way you can verify that is, if you have them, bring you at least 60 days worth of pay stubs. So, first thing, out of the box. We need to see pay stubs and then you can go back and do the math. You know, do they make? If it's $1,000 a month after taxes, are they making $3,000 a month based on the pay stubs? Second thing you need to look at is job history, and you know if you're not using a credit bureau to run credit reports on your applicants. One, I urge you to do so. But two, what is their job history? Right, you know. And if they build out their job history in the application and the numbers look like they pan out, you owe it to yourself to verify employment. You know that they show, because if they're jumping around from job to job every three months, I guarantee you there's a gap between jobs, which means a gap in rent. So what is their job history? Is it stable, you know, or are they unable to hold down the job? What's their eviction history? You know, if there's some, you will find people.

I'm sorry to say this, but it's getting worse and worse. Now the COVID-19 has started to end, you know, people are being evicted for not paying the rent now, more so than they were in the last three years. What is their recent eviction history? You know we're not talking about somebody that was evicted five, six, seven years ago and has had, you know, great land word references ever since. We're talking about people that are either currently in eviction or have been evicted at any time in the last, say, one, two, three years. You know what's their stable, what's their address, history. Just because evictions don't show up on county records, are they showing that they're moving from place to place? That usually indicates that they were able to pay the rent. They had a three-day notice and fortunately for the landlord they left. Unfortunately for the landlord they didn't pay. So ask for landlord references, get phone numbers. Also, I urge you to verify the phone numbers on the internet, because we have situations where people have tried to scam us and the number that they gave us for a past landlord was a family member and then it was all a ruse, right. So that stuff does happen and it happens a lot when people are, you know, under the gun, feeling desperate or whatever.

The other thing I absolutely suggest everybody do is charge an application fee. You know, an application fee is that first hurdle. That implies I wouldn't even say it implies it makes it explicit that you're serious about the application program If it's free to apply, anybody's going to waste your time. But if there's a charge, then charge it, and our application fee at this point is $65 in all markets, so it should be enough that it covers whatever costs you have, but it also should be enough that it shows you're serious, but not so much that it's going to drive potential great applicants away. And I can tell you, at least in the markets we serve $65 as average, or a little bit less. The other thing that you've got to keep in mind, especially if you're doing this yourself, is you have to be consistent. Whatever your process is, you have to run it for every single person you consider. Otherwise you run the risk of running a foul of fair housing laws and so forth.

Laci: Yeah, do you have to document it? Do you have to document it that it's the same for everybody, or is that?

Chris: Well, I would say that if you've got, if you're an accidental landlord with one property or a couple of properties, it's not likely that a HUD enforcement specialist is going to be knocking on your door. But first, if you're going to do something stupid, they will knock on your door. Especially everybody's going to know, especially at the age of Facebook. Many times people do end up being investigated owners with multiple properties because somebody was turned down. And you are absolutely allowed to turn somebody down who isn't qualified to take the property, pay the rent based on financials, but if it turns out that person didn't get the same, you didn't run everybody through the same process. You have to make a determination, right. So you have to have criteria. This is what screens people in, this is what screens people out.

If you didn't run somebody through the process and you deny them or you short-cut the process, you could run into trouble whether you did anything that was in fact, discriminatory or not. So you know it's a situation where perception equals reality. So, whatever your process is, be consistent with every single applicant, right. If everybody gets a credit report, run. Everybody gets credit report, run. Everybody gets eviction checks Everybody gets eviction checks. And I got to tell you friends and family sign twice. So if you're going to take a chance on running to somebody, you know, some family member, somebody that refers you know, referred to you, you know, hey, this person needs a break. You know, I got to tell you you've got to run them through the process and if you don't think that this is going to be a good fit for you and your property, it's a hard thing but you got to say no. So friends and family sign twice. And I would say friends and family go through the application process twice. How's that?

Laci: Yeah, that's. I mean, it makes sense and just some of the. So our screening process is I run the ads for Nana because Nana doesn't run Facebook ads. The first I don't know. You can rest easy, because I don't have to reply to any of these. In the ad it says call this number. Messages will not be replied to, which is maybe not, you know, great for those people, but so but they have to make the call and if they're serious.

Chris: they have to make the call, they have to show that they there's a commitment to this on your terms.

Laci: So I don't think that's the number of sob stories that I get on the Facebook messages is a whole. Nother you know the number of. I just need a break the number and I'm a bleeding heart. So it's good that I'm not the one who's making these decisions.

But you know, if you don't have some sort of solid criteria, then how do you choose between the single mom who you know needs a place for her and her six kids, or the person who has, you know, a terminal illness in the family and really needs a place because they can no longer afford this place, or so? I think that's a really especially if you're a small, small business with just a couple of properties, but it doesn't mean that you have an obligation to.

Chris: You know, destroy yourself financially trying to be nice to somebody who may or may not appreciate it. Right, I know it sounds coarse but this is. It is a business and you know there's many times, you know, people come through the office, you know, and we'll, you know especially, you know we're really fortunate to have some great tenant relations folks and if they don't qualify, we do try to point them in the direction where they can seek some, you know, help or assistance and you know we help existing tenants who hit a tough patch get over the hump with different forms of assistance and obviously, somebody who gets into trouble it's been a great tenant. You know our landlords aren't going to just boot them the first time that they're, you know, a couple of days late on rent. But it is hard and that's why not everybody should be a landlord or not everybody should manage their own properties. There's a couple of next level things that you know. I think what we just ran through checking evictions, stable address, history, landlord references and so forth you know if you're going to use a service and our credit service is built in with our application app that we use with a company we just called FindDigs that runs credit checks and so forth for us. But if you're really going to get to the next level, run a credit check Right, and we don't necessarily use a credit check as the final decision.

If anything, it's just another data point. You know, a lot of times people may have a bad credit score but everything else plays out just fine and that's the reason why they rent and they don't own Right. But you may find other people when you run a credit report that you know have a ton of collections. You know, maybe there's the bankruptcies we don't worry too much about because most of the people who file bankruptcy I mean there are some serial people who file every seven years, but usually somebody who runs into a bad batch and files bankruptcy are some of the best tenants that you can put into a property, provided everything else is in place there. So run a credit report. We don't. You know we don't set. You know you have to have a 600 or this or that. We don't play it that way. We look at it as another data point and see what else we can learn.

The other thing you can do is run a criminal background and you can pay for it, or you can go on your local county court site and you could find out if somebody has been evicted or what other criminal backgrounds they have. Right, obviously, it's going to show up if you're paying for a service which you know is paid for by the application fee that the tenant pays you for your costs and your time. But what is their criminal background? You know, if it's, you know something that happened when they were kids, 10, 15 years ago. You know, maybe it doesn't matter, right, if it's something more recent or if it's drug dealing and you know that corresponds with, you know, terrible landlord references or rent history and so forth.

You know you have to use it. You can't especially if you're well for all of us you can't just say, even from a fair housing standpoint, that somebody did something at X amount of time and that's the sole reason for not selecting them as a tenant. You know it's another data point, but you want to look at it. The other thing that you got to do and this has happened to us recently you've got to make sure that the person you're talking to is the person that they say they are yeah, I'm going to stand on that, yeah, yeah, so we this sounds terrible and thank God it was one of my properties, but we had just started.

you know we use tenant Turner and it's pretty cool because it asks a lot of qualified questions. You have to jump through who she has to pay an application fee and so forth, and you know we had an application come in for a property that I have in Columbus. Everything looked just absolutely great, hey Stubbs, everything. You know it was too good to be true. It wasn't. It was just super solid, right, and we moved them in to the apartment. We also allowed them to pay their first month's rent and security online through the app. It was a couple thousand dollars. Everything looked great, it was fine. They paid the money.

Like six, seven, eight days later, after they had moved in, the bank reversed the payment to us. So you know we go knocking on the door to see what's going on and the people who were in there clearly weren't the people that we approved. So we got 100%, totally and completely scammed. You know trying to make the application process as friction-free as possible, as good for everybody as possible and again, thank God this was my property and I didn't have to explain that to an owner or pay that out of my pocket.

But anyway, what it did was, you know, all the technology in the world is great, but we went back to the old school way that, yes, you could apply online, yes, we're going to do all of our due diligence and so forth online, we communicate online, but at the end of the day, they have to come to the office, they have to have a driver's license, they have to have a certified check or a money order for first month and security and that person has to be has to match the name of the driver's license, has to match the face and match the people that we've been working with. So, anyway, that shouldn't air a dirty laundry, but that's one of the things.

Laci: No, that's crazy. I think it proves a good point, though, where, even if it hadn't been your property, then it's you, the property management company, who has taken the responsibility for that, because that can happen to anybody.

You know, like, especially if you guys have all the checks and balances in place. And it happened, then right, and it's rare, but it could happen to Nana, and if Nana is doing it on her own, then she's the one that yeah and there's nothing you can do about it, right, we have to post a three-day notice and then we have to wait until we can file the eviction.

Chris: So they sat in that property 45 days and the sheriff ultimately had to come and set them out. So it was just a catastrophe all around. So do as I say, not as I do, right?

Laci: Well, what you've done. Is there anything else that I'm skipping ahead on anything, Because I do have another question.

Chris: Oh no, you go ahead.

Laci: I think that covers the whole criteria for what you need to be looking at Well because what I'm sitting over here thinking is like how complicated this sounds and how terrifying it must be to be an individual and have to do this yourself. So this is like a I think it's I absolutely think it's terrifying.

Chris: I mean, when I first bought rental properties, it was back when we had newspapers, right. I put it in the newspaper with my cell phone like an idiot and that phone ring off the hook for weeks. It was a nightmare. And then, you know, we move into Craigslist and that's a whole other set of scams. But I can't imagine what you and Nana are going through right now.

So here's what we do, right? First of all, we have some standards as to who we work with and so forth. So once we decide to work with an owner, we walk the property, make sure it's ready to rent to our standards, make sure that there's no surprises for us or the owner, because oftentimes the owner might have been told that somebody cleaned up the property and maybe they didn't do a great job. So you know, first of all we make sure that we've got a good property. We also divide everything up that happens in property management. We basically, you know, we divide it up between what are sort of front stage activities and what are backstage activities and, coincidentally, the backstage activities tend to be more involved with working directly with the owners and the front stage activities tend to be involved in working directly with the tenants, right? So quote backstage you know we have tenant who, heather, who runs our Roost Rehab and Maintenance Department. You know she has an office with a maintenance coordinator and we've got somebody that goes out and inspects properties, does estimates for repairs and so forth. Those are backstage. Gretchen essentially works backstage. She's a property management director and she's responsible for everything that happens in all of the offices and everybody in property management reports to you, to her. So that whole backstage thing, the other backstage things are accounting, right. You know, these people are someplace else, they're not disturbed, they take care of the money, they get the owners paid the bills and so forth. Running applications is backstage, right. You need to be focused on running those applications, doing the underwriting, making sure that we follow all the rules consistently every single time. So anything that requires somebody to sit, be still undisturbed and do quality work on behalf of the owners tends to be backstage.

So what's front stage? Well, front stage is almost all tenant interactions, right? So our property managers, tina and Faisal in Columbus and Springfield, for instance, or Susan and Rena in Florida, they have sort of a bivocative responsibility. They do talk directly to owners and they are the owner's property managers, but they are also out there on stage meeting tenants and supporting the tenant relations staff.

So we have Marcy, for instance, who's our tenant relations specialist, columbus, and Marcy is just amazing person because she just has a way of talking to tenants and setting them straight and saying things that I don't know how I would ever say them, but she does it appropriately and she gets away with it.

She just is so good working one-on-one with tenants, helping tenants who have a problem, helping new applicants, and saying, well, this is how it is, this is how it is, and you know she's been a godsend and you know we finally got a place where our front stage activities are what I like to call five-star review worthy.

So it's critical that you know that we have this front stage interaction with people that take anything that they're able to do online, whether it's an application or renewal or whatever but we bring it into the real world. So, yeah, we use Tenet Turner for marketing properties and getting people into properties and we use Findix for underwriting applicants and so forth, but at the end of the day, it's Brenda who does the actual leasing and it's Marcy and Dana and Springfield that really make the experience real for the tenants, and you know, I know it sounds like that we're going on and on about tenants, but I can tell you there is nothing more important to long-term owner profitability than superior tenant relations and you know, thank God, right now we've got a fantastic team of place that understands that as well.

Laci: Yeah, another important point, you know this is, as property managers, you are the middleman, right, so you know there's. You work for the owners, you work for the tenants, and I love it when you say you're in the shelter business, because that is inclusive of all of that. I guess my next question would be when we're talking about repairs, I think so you've talked about all this front stage, backstages, stuff in the office. What about out there? You know kind of boots on the ground. What's your advice for landlords who are working with tenants to make sure that repairs are addressed and how to like? This seems like the biggest sticking point, right, something's broken. You know you can't come fix it soon enough, or it's not fixed properly or it's an inconvenience to the tenant to fix it, or, even worse, when the owner feels like it's an inconvenience to them to fix it.

So how? What's your advice on that kind of part of the relationship?

Chris: Well, there's really three backstage departments, right. There's the accounting department, which is backstage. There's the leasing and renewal department, which is mostly done backstage, but it does interact today. And there's rehab and maintenance, right, which is really owner-centric because the owners are paying for it, but it's also tenant-centric because we have to maintain a service standard and we have to make sure, as best as we possibly can, that those tenants are taking care of the properties.

So, you know, when it comes to getting things, if you're out there running a property one or more on your own, you know one of the things that you've got to ask yourself how are you going to proceed with repairs? Are you going to do the repairs yourself, right? If a tenant calls you, you know, and the toilet's blacked up, are you going to be the person that's going to get in the car and go, or are you contracting it out? Or are you big enough to have an employee? Whatever it is, you know, you've got to be prepared to be able to spot at a moment's notice and drop anything else that you're doing in life, right? So what we do at Roost is rehab, and maintenance is huge. So we split the rehab and maintenance up between doing turns, which is rehab and doing day-to-day maintenance. On turns, heather and her team will walk a property, take pictures, do a proposal, go over it with the owner, either price it or go out and get an additional bid or something with our team and get the owner approval. On day-to-day maintenance, we have one person her name is Jade and we use a software product called Property Mail that keeps track of all the tenant requests for repairs and Jade uses Property Mail to assign those to our W2 employees. So we have, I think, seven or eight W2 maintenance employees right now that work for us. So our goal is an emergency to get dealt with within 24 hours. Anything else is dealt with within 72 hours.

Right, if, for whatever reason, the tenant is uncooperative. If they ask for something to be repaired and then you know they either don't meet us there or don't let us in or whatever, then we close that out, because if the tenant doesn't cooperate, there's nothing we can do. If it's something that is potentially a big deal, then we will post a 24-hour notice and we will go in on ourselves to take a look, because we're not going to leave the owner hanging with a potential problem, even if the tenant, for whatever reason, is uncooperative. So you know, maintenance itself is a function that it's a hard thing for individuals to do, unless you know. Being a landlord is your entire job and I guess, in a roundabout way, what we're coming back to is that day-to-day maintenance interaction between you, the owner, and those tenants. That's also key to holding on to tenants for the long term. If you don't respond to the tenant requests, they're less likely to take care of the property. If you do, they're more likely to take care of the property.

Laci: Yeah, I mean, that's one of the. It's really unless being a landlord is your whole life, not even just your whole job right, Because we have back up at all hours of the day and night.

Chris: We have owners that do all of those.

Laci: And when you're on, vacation and when you're, you know, with your grandchildren or whatever the case may be, you know. That doesn't preclude these.

Chris: But we do have owners that do their own maintenance and they say they're going to do their own maintenance, but it's not too long before they say well, can you do that?

Laci: Right. Well, on top of just the, you know the scheduling, the logistics of it, it's that relationship management part. And I think that's one of the things I love most about Roost is how you so gracefully walk that line between you know you're working for the owners, but you're also, you know, the shelter business, but you're also working with the tenants to give everybody a really positive experience. So talk to me a little bit about, because you don't see that everywhere. So why does Roost, why is that such a big deal to you guys?

Chris: Well, I think the first of all we have to be clear, and when you're going, you want to make sure you're clear on this in your own mind, and we do, about talking for a property manager someday. You want to be clear. So the question is, who do we work for? Well, at the end of the day, our contract, our property management agreement, is with the owners, legally, as licensed real estate professionals and the states. We do business. We have an agency relationship with the owner. Our, our owners are our clients.

Okay, first, last end of the story. Our tenants are not our clients, but our tenants are our customers. Now our tenants have a contract with the owners that Roost works with and the lease that that contract is with Roost on behalf of our owners. So any lease that we sign on behalf of our owners, because we're the owner's representative, right, we're still working for the owner, it's the owner that pays us, but the tenant is our customer and there's nothing more important than customer service and there's nothing more important or critical to landlord profitability than maintaining positive, productive and respectful tenant relations. And you know that's not an easy thing these days. And you know Marcy, dana, tina Basil, you know all these folks, walter, out there in the field every single day working with tenants. I mean, they're the reason that we are able to keep good tenants and, of course, you know, keep good owners. But our loyalty, our fiduciary responsibility, our obligation, our contract is with the owners first and foremost.

Laci: Right, yeah, Well, I love how you brought it back around to profitability, because that is what this is all about and it's important. The reason that you guys embrace this kind of commitment to owners and tenants on varying levels is for that profitability. So you know, how do you choose you said, good owners how do you choose which owners to work for? Because your profitability is important here too. Right, as a property management company, everybody has to win, right? We? Want everybody it's not just the owner and the tenant.

Chris: that's right, you guys too.

Laci: So how do you pick these good owners, what makes a good owner, and where do you find those?

Chris: You know, and it's funny I just had a conversation with one of our largest owners and it's just fantastic to work with and I said you know, we haven't raised our fees in over five years and things have changed and we need to talk about this. So we opened a dialogue and decided on what's appropriate and when we're going to lay a timeline out for it. But what you said is correct If we are not profitable, we can't help anybody. So it has to be when for the owners, when for the tenants and, yes, it has to be a win for us. And I'll be honest with you, we are much more selective about the owners we work with right now than we used to be. You know, our mission, like you said, is to maximize profitability for our owner clients. That's a partnership, that's a collaboration, and that means that we have to set and maintain clear expectations, you know, for what we expect from our owners and, of course, they have to know exactly what they can expect from us, and that, to a huge degree, is spelled out in the property management agreements that we have each owner signed in each market.

But another key pillar of this strategy is and we just actually created this new document. You and I talked about getting it out on a blog post yesterday, but we are setting and maintaining minimum property standards. So, again, this isn't about where a property is or who the tenant is or how much the rent is. It's about a minimum basic standard that if we're going to market a property as a roost property, then this is how that property is going to be maintained. So we created this brochure that'll be out on a website I think it would be on the website, if I'm not mistaken, definitely in a blog post this week. That's called minimum property standards for owners and managers and what that is. It lays out a standard that our owners can reference, new owners in particular, but it also lays out a standard that we as property managers go back and reference so that we hold ourselves accountable to set a standard and not cut corners.

And yes, we have had to part ways with owners that couldn't or wouldn't maintain their properties to basic standards. And these standards they're not anything onerous, it's honestly. We took them directly from what Housing and Urban Development said is what's acceptable for them. So safe electricity, right, the roof can't leak, there can't be holes in the floors or holes in the walls and the plumbing has to work. These aren't things that are luxury amenities. These are minimum standards for health, safety and security, and to expect us to put our name on a property that doesn't meet those minimum standards again is bad for us and it's bad for the rest of our owners.

So, again, maintaining the quality and safety of the rental units we manage on behalf of our owners impacts their business and ours. If our repusation is enhanced by the properties we manage, and so are the owner's reputations right, I mean, it is a collaboration. If our name is associated with subpar or unmarketable rental units, then that's just. It's not good for us, it's not good for the owners, it's certainly not good for the tenants, and we just can't let that happen. So I don't want to set ourselves out there, that you know we are holier than now, but the only way that we can be successful is if we're working with owners that you see this as a win-win collaboration.

Laci: So that's your minimum property standards. Is your application fee? That's your call. The office Don't reply to this Facebook message. That's your hurdle that owners have to overcome, right? So I? Think that's you know that's not setting the bar too high. I think that, again, minimum standards is not setting the bar too high. In a perfect world Every landlord would follow that, of course, but certainly there are some that we choose not to work with them. Yeah, yeah. Well, we've covered a lot today.

I'm pretty sure my brother did not say, any sort of agreement with my Nana. What did you like? There's no property management agreement there, so I'm gonna have to bring that up at the next family meeting.

Chris: Well, you only have a property management meeting, if well, you need a property management agreement with. Nana says you're the functional property manager, right.

Laci: Not me, just my brother and my dad.

Chris: All right. Well, you and your brother need a PMA.

Laci: They're actually the maintenance team and the property manager. They really they wear a lot of hats, but but you know, one thing that my family has always done is maintain the neighborhood standard and price reasonably for the neighborhood, and I think that's why they've seen, even without fancy technology or, you know, keeping up with the times, in a lot of cases they've always treated tenants well, They've always maintained those minimum standards, they always price their properties right and I think that's why they've seen so much success and I think that's a testament to why people do this right, why people become landlords and what's possible, even with just kind of the few basic ideas that can keep coming up over and over as we talk.

Chris: Those are permanent core values, right? What you described, those are permanent core values. Those never, ever change, right? I don't care what the market does, I don't care what technology does, I don't care what the law says, those things you described, you know, barely priced, well maintained, good tenant relations, that's going to be the same. That's what it's been for the past 50 years. That's what's going to be for the next 50 years. You can count on it.

Laci: It's good to have something to count on At times they are a change in always.

It's good to have those things to count on and I'm it makes me proud as a you know again, just a the marketer of the group, the family group. It makes me proud to know that you know that I'm doing this for people who, who care and care enough to maintain these values. So I'm sure you guys feel the same way. But let's wrap it up, let's kind of bring it all full circle. What final advice or tips do you have when it comes to choosing the right tenant for your rental property and making that kind of a part of your success as an investor?

Chris: Well, we know it's 99% of the battle when it comes to both immediate and long-term profitability. Right, the right tenant's going to keep your rehab and maintenance costs to a minimum. The wrong tenant's going to raise your rehab and maintenance costs. It just happens, right. Choosing somebody who's going to take care of your property saves you money on the back end because you're going to properties care for. They're likely to be fewer things to maintain, repair or replace entirely when your tenants move out. So it saves you money on the back end, saves you money on the front end, and that's what long-term profitability and financial security for our owners is all about. I would also add when it does come time for you to interview property management companies, keep these points in mind. Find out. Do they have standards?

Laci: right.

Chris: Or are they just signing everybody up? What is their attitude toward tenants? Are they in the shelter business or are they in the? I got to get a check this month's business? There is a difference. Are they collaborators or are they order takers? Are they going to prescribe solutions or are they just going to report problems? And I think those are key questions. And just like there are successful investors out there and not so successful investors out there, there are successful property managers out there and not so successful property managers out there. So do your due diligence, know who you're partnering with and if you decide to get help, I hope this helps you. If you decide to continue on your own, I hope these tips help you do a better job or focus on better things to ensure your long-term profitability when it comes time to screening a tenant.

Laci: Well, as always. I think this has been just super helpful. I can't see how this would not help the target audience here, these landlords, to be more profitable. The fact that you're sharing all of this, because that's a mindset of abundance. Not every property management company is going to say, well, we use this to screen tenants and this is how we do it. But truly, there's enough success out there for everybody in this podcast as a testament to that. So thanks for letting me be a part of it.

Chris: No, it's been great, and if anybody wants to check us out, you can go to wwwmanagedwithroostcom. Thank you, lacey.

Laci: See you next time.

Chris:Bye.