APARTMENT BUILDING MANAGEMENT 101 FOR THE INVOLVED OWNER: KNOW YOUR TENANTS
Managing an apartment building means that you will have to keep track of a good many things, from repairs and maintenance to city inspections and utility bills. Perhaps the most important aspect of managing a building however involves people rather than things. It is a well known fact that one of the cornerstones of good apartment building management is finding qualified tenants to occupy your building. There are three primary tools that an owner or management company may use: 1) web advertising, 2) tenant applications and 3) the credit report.
THE GROUND RULES
First things first. State law prohibits tenant screening based on race, color, religion, sex, sexual orientation, marital status, national origin, ancestry, familial status, source of income, disability or whether there are persons under the age of 18 living in the household. From leasing out thousands of units over the years, we can tell you with a fair amount of certainty that none of these factors will tell you whether an applicant will be a good tenant or not. We have seen families keep units immaculate and single person occupants create excessive wear and tear. We have seen the most respectable looking, middle aged people cause nuisances in our buildings and have seen young people with tattoos epitomize the model tenant. To make a long story short, there is no single factor, be it race, religion or family size, that determines whether you will have a good tenant or not so please do not discriminate based on those factors. It is against the law for a reason.
That being said, there are several things that you can do as an owner/manager to help put qualified tenants in your buildings.
In order to attract quality tenants, you have to reach the widest audience possible. Newspapers and other periodicals have gone the way of the dodo. They are extinct. Please do not waste your time taking out ads in any local paper. The web is by far the fastest and most efficient way to reach a large audience. One of the best free services is Craigslist, which reaches thousands upon thousands of users looking for vacant apartment units. If you are able, take some quality photos of your unit(s) and provide an accurate description. In our experience, putting forward as much information as possible is beneficial as it will weed out the non-committal types. Many other web services are available depending on where you are located. A quick google search will reveal a plethora of sites.
The one “old school” method that we do recommend is putting up a sign on the property a few months in advance of an opening. This is free advertising that reaches people in the immediate neighborhood. While we always use web based platforms to market units to the widest possible audience, we also employ signs and banners where appropriate.
The tenant application is your next piece of kit in your toolbox. A well crafted tenant application will reveal the information you will want to consider but at the same time, not hold up the process of renting out your unit. We believe an application that is 2 pages or less is ideal. This will give you enough of the information you need and will minimize the information you do not. You will need to know basic information about the applicant but there is no set formula. Some questions you may want to include are as follows:
- How many people will be living in the unit?
- Probably the most important information is the number of people that will be occupying the unit. Overcrowding can be a health and safety issue and it would not make sense to put in more people than a unit can handle.
- What is your monthly income?
- Important to know if a tenant is able to afford rent. Ideally, a tenant’s income should be greater than 2.5 times the rent ($2,000 rent = $4,500 or more for income)
- What is your occupation?
- Important to know that a tenant has a job and it sets expectations in terms of odd work hours or schedules.
- Can you provide references from your former landlord and employer?
- If a tenant cannot provide references, it may be a good indication to investigate further.
- Have you ever been evicted?
- No explanation needed.
This is by no means an exhaustive list, but you may want to include some of these questions in your application.
As mentioned above in the ground rules, there are some questions you may not ask:
- Are you married?
- How many children do you have?
- Where were you born?
- What is your ethnicity?
- Do you have any disabilities?
For obvious reasons, please do not include questions like the above in your tenant applications.
The final piece is the credit report. The credit report however is a tricky tool. On the one hand, a 700+ score might make a person look responsible, trustworthy and a dependable. Yet the number itself is not what you should be looking at. Instead, we recommend you look at the actual debts on record. Credit lines, car payments, student loans, these are all payments that must be made by the prospective tenant and will affect the tenants ability to pay rent. Look at these numbers closely. Someone with a 600 credit score but with no outstanding credit cards or other debts may be in a better financial position than someone with a higher credit score burdened with other obligations.
Using the tools outlined above, you are well on your way to finding qualified tenants for your apartment buildings. Nothing takes the place of active property management and a fair bit of due diligence will go a long way to keeping your property profitable and running well.