A Tale Of 3 Applications

Only one may hold the key…In our search to find tenants for our rental property we have received 3 applications. Of course, we have had many more visitors and serious inquiries but 3 people actually completed an application and gave their deposits to rent the property. That step is what separates the “serious” from the ready to rent.

These are just summaries that only scratch the surface. Each application and situation was very detailed and required looking at the file as a whole to determine if they were the right fit.

Here are their stories and outcomes:

Application #1 – An extended family down on their luck

It was a family of 5; the mother and father, the daughter and her fiancé in their 20’s, and their baby. The mother and father had low credit scores (low 500’s) and scads of collections but when I saw that the majority of them were medical (she had cancer) I didn’t hold those against them. That sort of situation could happen to any one of us, no matter how well we plan.

Pros:

Cons:

Outcome: They were declined on the recommendation of my management company

It was determined, based on their current financial situation, that they wouldn’t be able to afford the increased rent without additional income or reduction of debt. This is especially a concern since they were taking three possible dependants into the household (the younger couple were living with the fiancé’s parents at the time). The fiancé claimed to have employment but that income could not be proven and therefore, couldn’t be considered.

Application #2 – A couple needing to find a place immediately

This couple was in their 40’s and was in a strange situation. Their landlord lost his job and needed to move back into the home they rented. Our manager spoke to the landlord and confirmed the story. We have no idea what kind of notice they had or the details behind it, but they applied on a Monday and had to move in that Wednesday.

Pros:

Cons:

Outcome: We approved with conditions, they rejected the conditions and withdrew

They had strong incomes so we decided to give them a chance as long as they would agree to pay an increased security deposit (1.5 months rent) and set up direct deposit. We felt the additional deposit would help cover some losses if they stopped paying rent and had to be booted, especially since it appeared that they stopped paying some bills recently. They said they knew they had credit problems but didn’t feel they should be penalized for it and withdrew their application.

It’s definitely for the best. Now I wonder if the story was fabricated in an effort to rush through the application process. There is no way they would have been able to find another home, get processed, and move in less than one day. Something sounds fishy.

Application #3 – Young family moving to town for new jobs

This family was a couple in their 30’s with a toddler and a baby. She is an RN scheduled to start work this month at the new hospital close by. He is a construction manager who was recently laid off but still on severance pay. He is looking for a new job in town.

Pros:

Cons:

Outcome: We approved them with no additional conditions

They are likely short term renters just wanting to get settled in a new town before they find a home of their own. I don’t see anything wrong with short term renters as long as the term is no less than a year. Although her salary alone isn’t enough to cover rent plus their expenses, the money they have in savings will make up for his temporary unemployment. Our area hasn’t been hit with the same decline in new home construction so hopefully he can find a new job in his line of work here.

It looks like we got lucky and snagged a new-to-town family with good scores!

Our manager has drawn up a lease agreement is working with them to get everything finalized. Hopefully it will work out this time and this will be the last application we process for at least 12 months.

If all goes well, we will have had the home on the market just shy of a month before finding a tenant. That isn’t too bad!

Image Source: takacsi75

What Your Landlord Thinks Of You

Aw man!  I should have asked for a bigger deposit!Well, maybe it’s more of what your landlord thinks of your rental application.

Evaluating applications from renters wanting to lease our old home has given us an interesting look into what landlords value in a tenant. I assumed the optimal tenant would have a good credit score and payment history. I learned that isn’t necessarily true.

I’m going to be blunt and it may seem like what I say is cold.

Keep in mind that I don’t necessarily agree with these criteria and not all landlords use the same guidelines, either. These are not hard and fast rules; just observations I’ve made from my personal experiences so far.

Bad credit can be better.

Low credit means there’s a higher chance that you’re staying put. It’s common for tenants with high scores to lease for a short period of time then leave to buy their own place. They tend to be short-term renters. However, people with low credit scores may have barriers preventing them from buying their own home; perhaps their debt load is too high or they can’t secure a loan. That means it’s possible that they could become a long-term tenant.

The one thing a landlord hates to have is an empty property. Every time a renter moves out he has to start the process of advertising and screening new tenants, which could lead to a month (or longer) of having a property unoccupied. The ideal situation is getting a reliable long-term renter; one who isn’t going to go buy his own place in a year. We were told that large tax liens on a credit report could be a good thing because the applicant won’t qualify to buy a home. Awful, I know, but it’s true.

Late payments are ok, just not on rent.

Our manager says, “people will be late on just about every bill except for one that ensures a roof over their heads.” He has seen it all as far as terrible payment histories, and shrugs it off. He isn’t phased by a credit report full of lates on credit cards, loans, or utilities but he doesn’t want to see late rent payments.

Eric and I were concerned about one app in particular because he had a handful of bills (including child support) that went to collections just last month. Our manager said that he had an excellent history of paying his rent on time and that is what should matter most when evaluating him. It was hard for us to think in those terms, but I understand what he meant. I tend to wonder that if the other bills aren’t getting paid when will the rent be next?

Employment isn’t enough; it needs to be verifiable.

Long-term employment is a great thing in the eyes of a landlord. It’s even better when there are multiple income streams in the household; that means if one person loses their job there is still income coming in. However, if the employment isn’t verifiable in some way, it doesn’t really count.

One application we received had three incomes, all of them claiming they earned $2000 gross a month. Two of them were verified through credit reports and check stubs. The other applicant said he just started working for his father (whom he lived with) and couldn’t provide a check stub. He had no credit history (so no credit report) and no previous employers. We ended up not being able to consider his income because it couldn’t be verified.

He doesn’t care about your criminal history, up to a point.

The past is in the past, unless it’s serious or recent. With one application the resident had a criminal history starting as a juvenile. That would have been ok (all small charges) except that he had a conviction for every year after that, too. It didn’t just stay in his past, and some were repeat offenses. That isn’t a good sign that he is on the straight and narrow, if you get my drift.

Past rental problems are a big red flag.

One of the biggest factors when deciding on whether to approve an app is rental history. When they run your rental history they don’t want to see any evictions on your record. No landlord wants to deal with the hassle of an eviction and careful screening is one way to help avoid risky tenants. Past evictions could indicate a higher risk level and could pose a problem.

Big dogs mean big deposits.

We are total animal lovers and welcome pets in our old home, but when we got an app from some folks who had two 40 lb. puppies we asked for advice from our friend who manages 5 rental properties of his own. He advised us against it and said we should decide on a pet policy right away.

He said big young dogs have done the most damage to his properties in the past, requiring the replacement of doors, woodwork, flooring, fencing, and even the backyard landscaping and grass. He no longer allows dogs over 15 lbs. for that reason. He recommended that we increase the pet deposit to cover the cost of replacing the flooring. The couple didn’t make it through the screening for other reasons though, so we never got to that point.

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I thought it might be interesting to share the new perspective we have now that we are landlords. I was shocked to find out that my assumptions were wrong on what things add up to be the best tenant. I also think large scale landlords may differ a little from single home landlords like us. We want someone who is stable and is going to take care of the property while multiple property owners may focus more on simply getting a long-term renter. I think experience plays a role, too.

Every application is different and depending on the situation, some of these factors may be ignored. In fact, we just approved an applicant today that doesn’t fit all of these criteria. I guess we are rebels! Hopefully it will pan out and our property will be occupied in a few weeks!

Image Source: Nick Douglas

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Rent Or Sell: The Decision

I guess you can’t BUY respectI apologize for not writing about our decision on whether to sell or lease out our old home earlier than today. I didn’t realize I left you all in the dark until this week! Shame on me.

The house has been on the market since January 26th. After careful consideration, we decided to put the home up for lease. Here’s why:

We will be able to rent it for more than our mortgage payment, including insurance, taxes, and fees. That means we will be able to pull in a small profit every month while still building up equity in the home. An extra $200 a month could really come in handy.

By keeping it as a rental property we can deduct the cost of repairs from our taxes. That alone will save us a good amount of money. We can also deduct the management company fees and the depreciation of the home. This means we can reduce our overall taxable income while still earning a slight profit every month.

The area is very likely to appreciate in value in the next few years. While the home used to be on the edge of town it is now considered a prime location. In the next year there are plans for more shopping centers, entertainment venues, and restaurants to be built within a mile of the home. The location is also perfect for accessing all the major highways (some newly built) in the area.

We like the idea of having our funds diversified. By owning a property we have our wealth diversified into multiple areas and not all in stocks or bonds. If we need to tap the money we have the option to get a home equity loan or we could always sell it in the future. Even though this form of investment isn’t exactly liquid we do have options just in case.

We didn’t need the equity to buy a new home or pay off debt. In my original plan, selling the old home would have provided the funds we would need if we went into debt from the move and carrying two mortgages. So far, we have avoided going into debt and we still have enough funds to carry the home for several more months. I’m a little bummed that we can’t build a screened sunroom yet (the money would have come from the sale) but I can wait. It will be a good savings goal for me to set for this year.

We might not have been able to get the price we wanted if we sold. Although our realtor felt we could get our target selling price, we felt a little uneasy because many of the recent home sales were at lower figures. Our area has not been affected by dropping property values yet but the credit crunch is everywhere. We would still need to be competitively priced despite the fresh paint and upgrades.

We also decided to go with the management company we mentioned. It will cost us $50 a month but we feel it will be worth it not to have to deal with the everyday stresses of being a landlord. We have received several applications on the property but so far none have panned out. I’ll write about those experiences soon.

Hopefully this decision will turn out to be the right one!

Image Source: mulad

Embarrassed By Your Accomplishments?

THAT’S your new house??I find myself in a strange dilemma these days. I often get asked how I like the new house and to tell them all about it. I consider getting the new home to be a huge accomplishment for us. It took effort, sacrifice, and hard work to manage to “move up”.

But with many significant accomplishments – like getting a nice home, a hefty promotion at work, or an upscale item – you have to figure out how to handle it gracefully with others.

How do you remain humble about your accomplishments without others thinking you are dissatisfied, embarrassed, or even rude?

Here are two scenarios I have encountered recently:

Does she even like the house?

I’m a humble person by nature. I just don’t want to “toot my own horn” around others. When people ask me about the house I usually reply that I really like it and that it works well for us. Recently, some friends thought my lack of exuberance on the subject meant that I must be unhappy with it for some reason. They asked Eric if I even liked the home. They couldn’t have been more wrong.

I absolutely love my new home. It’s perfect. I simply feel uncomfortable gushing on and on about how awesome my new house is to other people. I feel like its bragging.

I suppose they were looking forward to me telling them all about my house and were disappointed when I spoke in general terms and not of specifics. If someone asks me questions about the home (how big is it, what kind of countertops, etc) I’m happy to answer them but I’m not inclined to spend a lot of time talking about all the upgrades without being prompted. It feels like showing off to me.

Nobody likes that guy at the party who talks about how cool his brand new yacht is and how it has the best of everything. I don’t really want to listen to that guy and I certainly don’t want to become that guy. I feel a discreet reply is the appropriate way to show my happiness with the home without shoving my accomplishment in everyone’s faces.

When can we come over?

Our last house was in a modest neighborhood and we have a friendly relationship with one of our neighbors there. We talk and help each other out but we never have dinner together or anything like that. You can say that we’re cordial but not close.

When we run into them while at the old house they say that they want to come see the new home. We say we will invite them when we are more settled. Just yesterday, I got a phone call from her saying she was driving around in our new neighborhood trying to find our home. She wanted to stop by unannounced. Thank goodness I had plans already because I have been avoiding this situation.

The neighbors are wonderful people but I’m reluctant to ask them over. We don’t know them very well so I wonder if they will view us differently or if it could make them feel bad in some way. Let me explain.

When we talked this week she told me that the cable guy had just stopped by their house because they were so late on their payments. She had to write them a check right then to keep service going. She explained how terrible they were with money and how they just never figured it all out. She even said: “I’m 20 years older than you; you would think we would have learned this by now.”

Bringing her to this house, which is considered an upgrade from our old neighborhood, makes me feel immodest and a little insensitive - especially after she told me of their money issues this week. I know we worked hard and sacrificed a lot for our new home, and that their financial problems aren’t my fault, but it still doesn’t make me feel better about the situation.

In the same way that people may hesitate having “rich” friends in their home due to embarrassment or fear of judgment, I’m having the same sort of concerns. I think it goes both ways. To me, it’s kind of like talking about having a fully funded emergency fund to your friends who are living paycheck to paycheck.

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I know many people would say that I’m crazy to feel funny in these situations. I should be proud to show off my successes to everyone, right? It isn’t that I’m not proud of how far we have come – I absolutely am. Maybe part of it is because I understand how it can feel being on the other side.

I can admit that I’ve seen my friend’s new Lexus or Sub-Zero fridge and felt that pang of jealousy. Hell, I’ve been jealous of my sister’s gorgeous kitchen for a long time now. Now that I finally have a kitchen I’m proud of, I just can’t help but be humble about it to others.

Have you ever felt embarrassed to talk about an accomplishment to others? How did you deal with it? Leave a comment and let us know!

The Reluctant Landlords?

C’mon $165!Last night we met with our realtor to discuss the fate our old home.  Now that the new flooring is going down it is time for decisions to be made on how we will list it.

Prior to this meeting we told our agent that we were leaning towards selling it, provided we would be able to get a decent price for it.  We simply wanted the home gone.  He has always encouraged us to consider leasing it (he feels the area will appreciate nicely) but he said he would do the analysis based on selling it. 

When we replaced the roof, the insurance company valued the home at $171K.  I recognize it’s in the company’s best interest to value it high (higher deductible) but we still felt encouraged by that figure.  However, when we looked up our home on Zillow it showed it being valued at $158K, which is the tax appraisal value.  We looked up the homes currently for sale in the neighborhood to get a feel for what they were being offered for.  Only two were on the market, both about 2000 sq ft (same as ours), and both were listed at $159K.  We were really hoping to get no less than $165K for our home after negotiations, especially since we just spent $8K for a new roof, flooring, paint, and repairs.  We started to wonder if it would be smarter to lease it until home prices rebounded.  Maybe we could get enough in rent to cover the mortgage payments but we weren’t sure.

Our agent handed us a nice folder detailing all the recent sales and leases in our neighborhood.  To our surprise, he said we could definitely list the home at $168K for an adjusted sale price of $165K.  Apparently, the homes are selling very quickly in our area and the new flooring and paint could easily justify a higher asking price.

Wanting to know all our options before making our decision, we also asked about leasing.  Our agent owns ten rental properties and even runs a rental management company so he is very knowledgeable about that market.  He felt confident that he could get a tenant in our property at $1295 a month.  Again, we were pleasantly surprised to hear that.  Our old mortgage, with taxes and insurance comes to $1045.  That’s a profit of $250 a month!

A few of our friends own properties in other areas and some rents aren’t covering the mortgage payments.  But even at a loss they are still providing benefits through tax write-offs and available equity.  If we were to lease it, we could write-off a large portion of the $8K we put into fixing it up and we could grow our equity using the tenant’s money until we are ready to sell in a better market.

I will say this though - Eric and I aren’t exactly keen on being landlords.  Neither one of us has the kind of personality that would enjoy it.  So, if we leased the home we would want to drop our profit margin slightly (by $50 a month) and have it managed by our realtor’s company.  That means he does all the advertising, screening of tenants, contracts, rent collection, repair management, and even the evicting if it comes down to it.  If the A/C goes out, he is the one that fields the phone calls and uses his connections to get a repair guy out there.  Our responsibility at that point is to cash the rent checks and fund major repairs if needed.

So – it comes down to this:

I don’t think we will be disappointed either way since both scenarios exceed our expectations.  Right now, Eric and I are thinking it might be better to lease it and become the reluctant landlords.  Tonight we are going to sit down and work through the numbers to be sure.  I’ll report back on what we discover!

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