Monday, October 23, 2017

Why Best Landlords Learn to Find Good Tenants Fast: My $30,000 Mistake

Eviction After Math

First, let me show you how much money a bad tenant costs. True story. This is not the worst that can happen. But I am quite certain this outcome is pretty average. This is why you hear so many tenant horror stories. Some landlords quit after the first bad tenant... and I understand why. Others, like you and me stick around and learn. The trick is to learn fast. 


You Failed


Tenant stops paying monthly rent. You knock on her door. She rushes back into the house and brings out a couple of hundred. Apologizing profusely, she explains that something went wrong in her life. She is already on it and fixing it. This won't happen again. She'll pay the rest of the rent by next Friday. You see how stressed and nervous she is, her fingers trembling. You can hear her little ones behind the door. It's dark and cold outside. You thank her and let her know that next Friday will work.... 
Send N-4 as soon as the rent is late.
Don't find excuses to procrastinate and let things get worse.


No interac comes in next Friday. You still feel sorry for the tenant and can understand her situation. You feel guilty for having to ask her about the rent, when she is in such a tough spot. Your brain throws in sporadic questions about her kids, cold Canadian winters, and reminds that some of your own friends and family have been in tight spots as well. What if you had no money? Bad things happen to everyone...

You decide to give her until Monday. Then, you text her on Wednesday. Call on Friday. She asks for another couple of days...

Finally, you collected full months rent. It's still the same month on the calendar. You are so happy that you did it! You are cash positive this month again. Hurrah!

Oh wait, it's the 23rd of the month. It's obvious that you won't be getting full rent on the 1st of next month. Most likely, the tenant will be a full month behind, then month and a half, etc...

You feel depressed from the thought of going through the same dreadful process again...
You turn around and tell your husband that you are sick and tired of his computer games... 
You tell him to shut down Dota and do something useful...
Your kids seem to be doing all the wrong things... 
Everything seems annoying...
You failed.

Situation will not improve. This N4 is for the same tenant, 5 months later!!!
I let them take their time destroying my property.

You Paid 

Garbage in every cabinet
Besides all the emotional drama and looks from neighbors who don't understand why your tenant's trash is flying all over their street, late rent is only a small portion of the full cost. 

The sooner you address the root of the problem and evict the bad tenant, the more chance that your unit is salvageable with minimal renovation.

In my instance, the numbers turned out as follows:




Lost Rent 2016: $1,365
Lost Rent 2017: $160
Court application 2016: $170
Court application 2017: $175
Sheriff eviction fee 2017: $323
Paying tenant to move out her furniture 2017: $500
Returning last month's rent to tenant 2017: $790
Cleaning & garbage removal: $1,747
Renovation materials: $4,550
Renovation time & labour: $16,375
Vacancy during renovation: $4,350

Total:$30,550.

And this is why good landlords learn fast.


Garbage on the front yard

How to Find a Good Tenant


  1. Ensure your application form contains good tenant screening questions and you collect everything needed to make an informed decision and minimize guess work and thus risk. 
  2. Do not accept incomplete applications.
  3. Do not accept tenants "on the spot", even if they complete the application fully and give you first and last month rent.
  4. Do not accept any money from any applicant until you complete all steps of the application process.
  5. Do not accept applications without verifying all of the information thoroughly.
  6. Receive and check the following types of info and references:
    1. Legal identity reference (ex., drivers license or passport)
    2. Character/personal references
    3. Employment, school or other occupational references
    4. Guarantor reference. Find out who will help them pay their rent and confirm that's true with that person.
    5. Credit verification - ex., recent equifax report or 3 months of bank statements
    6. Income verification - 3 latest pay stubs or another proof of income
    7. Tenancy verification - Contact landlords over the past 3 years
    8. Social references - dig deep in social media
    9. Emergency contact.
  7. Follow your gut feeling. Do NOT accept tenant in a rush or if you are not sure about them. You only need one good tenant and you will find them.
  8. If you are too weak to do this properly, hire a professional.


Make the Unit Ready

Rental Unit ready to be someone's home
I believe that every rental is someone's home and they should be proud and happy about it. I always strive to make sure that the unit is ready before a new tenant. I try to put myself into the applicants' shoes and see if I'd want to rent my own apartment. 

I think that tidiness and completeness are two most important things. Most of my units have older kitchens, thermostats and appliances, but all of them are crispy clean. 

  • The unit is clean. It looks, feels and smells nice
  • There is a rug in front of the front door and a place for shoes (especially if it's lousy weather)
  • All windows have white blinds
  • All kitchen cabinets, appliances, and closets are clean inside and out
  • All toilets are clean
  • Bathrooms are clean
  • Switches, plug covers, outlets, thermostats are clean
  • Floors, walls, and ceilings are clean
  • Garage is empty and clean
  • Basement has been swept. No spider webs :)

Advertising & Search

First, look up similar ads on Kijiji and other sites to understand current market rents. Once you know your price, start advertising.

Kijiji worked great for me, for all my rentals so far. In my ad, I do my best to explain how the unit feels as if you are walking through it. I add bright and focused pictures of all rooms and the house itself.

If there are any known issues about the unit, find a way to be up front about them in a positive way. For example, one of the units we have has no parking. I put in the ad that free street parking is available and/or tenants can purchase paid parking across the road for x dollars. This saves my time  and applicants' time by not showing to people who wouldn't like to rent the place anyways.

I typically put an ad asking all interested to email, call or text me to book a time during an upcoming open house. Usually, I put my ad up on Wednesday or Thursday, and schedule the open house for the following week's Saturday.

Depending on how many responses I get, I do my best to schedule all showings during one or two 3-hour blocks, 15 minutes apart. I collect email and/or phone and name for each appointment.

The day before the open house, I text, email or call everyone with an appointment and remind them about the showing.


The Day of the Open House

My husband, friend or oldest son helps me during the open house. Appointments often shift and overlap. So, it is convenient if there are two people there during the showings: one stays outside of the unit and greets visitors, the other one does the walk through.

During the walk through, I try to keep a little bit of a distance, to make sure all visitors have opportunity to view the unit thoroughly, discuss it with their family/friend/partner or just think about it. After all, it will be their home and they should feel great about it.

Before they finish the visit, I do my best to do a quick pre-screen. I write down my notes as soon as possible after they leave to make sure I can remember my first impression, in case the visitor submits an application.

I offer an application before they leave. If they'd like one, then I briefly explain key steps in the application process and tell them that I'll email / text them a link to the online application form right away.  If I get a feeling they'd prefer a paper version, I give them a paper copy.

I use Google forms for my online tenant applications.


Tenant Screening Questions 

Here are some examples of tenant screening questions and discussion points. I ask these questions in a form of a conversation during the walk through. My goal is to get a feel about visitor's situation and tenant profile.
  • Do you mind if I ask, why are you looking for a new place?
  • How is your search going so far? Have you run across anything you like? 
  • When are you looking to move?
  • How did you like this place?

Reference Check Questions

Once you receive an application back, you must check every reference and validate every piece of information on it. Use the same process for every applicant consistently. Have a consistent decision making approach. Understand what you can and cannot ask legally in your area. 

Don't discriminate based on race, ancestry, place of origin, colour, ethnic origin, citizenship, creed, sex, age, marital status, family status, disability, or the receipt of public assistance.

For example, see illegal questions at the bottom of this CMHC article.

Try to stay away from yes and no questions. Lead a conversation instead of reading questions off your list. Listen to clues about applicant's personality, personal situation, and history. 
  • How do you know (applicant name)?
  • How long have you known him/her?
  • Can you please tell me a little bit about his/her personality?
  • What does he/she do for living?
  • How often does he/she party?
  • What music instruments does he/she play?
  • Does he/she always smoke outside or sometimes indoors as well?
  • Why do you think I should consider his/her application?
  • If you had a place, would you rent it to him/her?
  • Why would you?

Questions

I hope you found this post helpful. If you'd like to bounce any ideas or have questions, please comment below. I look forward to your comments and feedback.

Pls note, this artcile is based on my own experiences. Don't take it as official legal advice and always double check your local laws and regulations.

In Ontario Canada, tenant and landlord rights and responsibilities are listed on the Landlord and Tenant Board site.