Ever wanted to be a fly on the wall, listening in to a conversation between an expert, and someone asking all the right questions about being a successful landlord? Well that’s exactly what a recent podcast episode with Mike Simmons and Stephen Michael White sounds like.
Mike is a real estate investor himself, and is the host of Just Start Real Estate, a daily podcast that educates up-and-coming real estate investors. Since making a goal himself to buy and hold more in 2014, Mike was the perfect person to interview Stephen about what he’s learned from working with over 10,000 successful landlords.
Listen to the full episode of Just Start Real Estate below. Or, read through the transcript and find the answers to all those questions you have about becoming a successful landlord. We’d love to hear your opinions in the comments section.
How to Be a Successful Landlord
Just Start Real Estate Podcast with Stephen Michael White – Entire Transcript
Mike Simmons: Okay, welcome and thank you for joining me on [Just Start Real Estate]. Once again my name is Mike Simmons and I’ve got a guest here today that I’m very excited about and we’re going to run this interview just a little bit different than what I normally do. I have on the line Stephen Michael White; who is the Founder and CEO of a company called Rent Prep. It’s a resource site for landlords and real estate investors. The sites core product is a unique tenant background check solution that has protected over 10,000 landlords since 2007. Very excited to have him here, welcome to the show Stephen.
Stephen Michael White: Thanks for having me on Mike, I’m really excited. I’ve been listening to your show, and I don’t know if I’ve caught up with all the episodes yet, but I’m working on it and excited to spend some time with you today.
Questions From a New Landlord
Mike Simmons: Hey, I appreciate that. Like I said in the opening here, I’m going to run this show a little bit different. Most of my audience knows that my questions are very similar. We do a lot of interviewing of real estate investors. So this one is going to be a little bit different because you’re not a real estate investor per say, but you own a company that works very closely with real estate investors. And I think the service that you’re providing, your company’s product is so in-line with my audience and what they are going to need as far as tenant screening.
I’m going to approach this more like a new like a new landlord which I’m going to be in 2014. I have dedicated my company to pursuing a lot of buy and hold properties. I have one currently but I’m really kind of new to all of this and I want to talk to you from the perspective of someone who is new, which I am. And since I’m a beginner; I’m going to have stupid questions. I might have a few good questions too so hopefully they are questions that my audience is going to be echoing as they are listening to this. So I’m kind of excited about this. It’s going to be a little bit more of a conversation than an interview I guess like I normally do if that’s okay.
Stephen Michael White: I’m perfectly fine with it. We take so many calls from new landlords that are in the exact same position as you. So I’m really excited to dive in here and help lend our perspective, which is really helping new landlords or landlords that just came out of a really bad rental situation or a bad tenant situation. So I can give you some great perspective on some of our experience from both of those different types of landlords.
How and where to find good tenants
Mike Simmons: I know you work with a lot of experienced landlords, where are they finding good tenants? Where do you go? Forget tenant screening for a minute, how do you even start the process of finding good tenants? What’s the right way to do it?
Stephen Michael White: Well the most successful landlords that we work with seem to all have one very important thing in common and that is building a good pool of prospects. So what you don’t want to do is back yourself into a situation where you’re desperate for a tenant. You’re really excited to get somebody in there as fast as possible because you need them to start paying rent and contributing towards that mortgage that you’re paying. So some landlords will only look at one or two applications.
But the most successful landlords that we work with understand that the larger the pool of applicants that you have to select from, the better your chances are of really finding the right tenant are. So the good landlords are very picky and they adopt very simple policies like a no blank space policy on the rental applications. That’s probably first and foremost.
So you know when the applicant comes in and fills out the application and they conveniently leave out most of their previous landlord’s information and they say “well I don’t have that” or “I don’t know what it is off the top of my head.” The successful landlords are the ones that hold them to it and say, “Well we need that. That’s required. Please find that out. And then put on the application because we’re going to be looking into that as well.”
Mike Simmons: Right.
Stephen Michael White: So I think that’s the key to finding good tenants. More so than what platform you’re using to list your rentals. If you are looking for a platform recommendation, I would probably say Postlets, where they syndicate your postings.
Craigslist is another. Obviously, I know there are some major changes that are going on with Craigslist right now and stripping the HTML options. But for the everyday smaller landlord that’s actually a really good thing because it’s leveling the playing field between you and these large property management companies. Now everybody’s posting looks the same.
So whether it’s Craigslist, Postlets, or anywhere that you’re posting a rental, the key is really good marketing. These renters, these applicants out there are doing just as much screening on you as you’re on them. They are looking for a good landlord they want to make sure they are renting from somebody that’s going to take care of them well and maintain their property just the same.
So you know I think it’s really obvious when you go through sites like Craigslist and you can see the ads that are just kind of thrown up there and then you see the ads that have a lot of thought put into them. The ones that do have more thought put into them, the ones that are put together better with pictures and descriptions are the ones getting more people interested and getting more qualified applicants applying. So that’s really the key, increasing your number of qualified applicants to choose from.
Mike Simmons: Yeah and I think that’s a good point that you just made about putting something up there that’s well thought out. If I’m a renter and I’m looking to maybe be less than diligent about paying my rent, I would look for someone who looks like they are kind of half ass-ing it for a lack of better term. Someone who is very well put together and has a really nice ad and seems like they are very on top of it.
I would think that would be a deterrent for bad renters. I could be wrong about that but that’s just my gut feeling is that you don’t want someone who is completely on top of things, you want someone who is sort of like not putting a lot of effort in because maybe you can get over on them a little bit.
One question I did have as you were talking and maybe there is no great answer for this but when you’re screening for tenants is there a rule of thumb how many applications should you be looking at before you rent it out?
Stephen Michael White: 10. 10 applications seems to be the magic number. I’ve had that question asked to me before and so it’s something that we had done a survey of our current clients. If you’re doing a really good job screening them upfront like you mentioned having that well thought out, well put together ad does definitely screen out a lot of the ones that are looking for the path of least resistance. The landlords that aren’t going to do a background check. The landlords that aren’t going to maybe do such a good job screening. Those tenants, the bad tenants, know how to identify them right away.
Mike Simmons: Okay, that’s great so it wasn’t a dumb question after all!
Stephen Michael White: Not at all.
What are some warning signs for landlords when tenant screening?
Mike Simmons: All right so when you’re doing tenant screening you mention about the no blank spaces policy on the application. I love that that’s a great tip, that’s something I never would have thought of I guess but what are some other things that we should be looking out for on an application? When you’re screening a tenant what are some of the warning signs that you really should be running away from?
Stephen Michael White: Well a huge warning sign is not giving their social security number or not giving really pertinent information like that. I hear a lot of landlords that say, “Well the applicant doesn’t want to give their social security number because they had their identity stolen or they’re worried about having their identity stolen.
There are a couple of ways to look at this. Number one if you’re coming across as a very professional landlord, like you’ve really got your stuff together, there shouldn’t be a whole lot of red flags from the tenant’s perspective that you’re going to mistreat their information. So that might be an indication immediately that maybe you’re not doing as a good of job creating a first impression as a landlord or creating those ads, giving people the confidence that you’re going to treat their information very carefully and securely.
So that would be you know the first warning sign is usually they are withholding information.
A lot of times they will say, “I don’t want to give you my current landlord’s information because they don’t know that I’m leaving.” Well I would say there is definitely some red flags raised right there, why don’t they know you’re leaving? Why wouldn’t you want to let them know you’re leaving? Is it because you’re breaking your lease? Is it because they are going to be so sad to lose you? I doubt it.
The good tenants understand how to play the game, they understand the rules of the game and they will usually give you all the information because they really want they want to get into your unit. The applicants that know how to duck and avoid certain things are the ones that are going to give you some problems right up front usually with the information that they are giving you.
What are some things you shouldn’t be concerned about when tenant screening?
Mike Simmons: Yeah that makes a lot of sense actually. So, usually when I hear people talk about rentals, especially in this day and age where the prices of houses have come down so dramatically in most markets, I usually have the opinion that if someone is going to rent it’s because they have bad credit generally. I know there are other reasons besides they have bad credit, but if they had good credit they would probably buy a house. So what kinds of things can you sort of not worry about if their income isn’t great? If their credit history is a little damaged, what are the things you see where you generally tell people, “I wouldn’t be concerned with that.” Or is there anything like that?
Stephen Michael White: Well I would say you squash that notion right away because renters have good credit. Statistically, there is less than a 10 point margin in credit score. So the average credit score for a renter is 649. The average credit score in the U.S. right now is somewhere hovering around 660, 670. So there is not that big of a gap and you know I think it’s a pretty common misconception to assume that if you’re renting maybe you can’t afford to buy a house but I just don’t think that’s the case a lot of times especially in sort of this transient world that we live in where people move because of their jobs.
The typical perception of a renter is usually that they bad credit. That there is some baggage that comes along with renters and you just have to accept that. But it’s really not the case. A good tenant is somebody who doesn’t have a history of judgments against them, or who doesn’t have a history of evictions (certainly probably first and foremost I would check evictions before anything). The judgments, liens, bankruptcies are all things that good tenants don’t have a record of.
So I don’t know if there is anything specific that I would say, “Well just go ahead and overlook that. Don’t worry about that.” I mean obviously people have had their trouble in the past and financial history and obviously 2008 we saw the huge recession and 2008 is still well within the reporting period. So we’re still seeing a lot of people that were affected by that. So there is definitely some good judgment from a landlord that has to look at this stuff and say well they had judgment against them or lien against them back in 2008 but they cleared up, they paid it or maybe they filed bankruptcy a couple of years ago but nothing since then and they seem to be pretty good.
And as long as you’re doing your due diligence and verifying that they have a current income. We’re talking about calling employers, looking at pay stubs, not just taking somebody’s word for it but you’re verifying that they have the income. Their income meets your criteria, which is usually three times the amount of the rent is usually a pretty good standard.
Mike Simmons: That was my next question, okay.
Stephen Michael White: Yeah so three times the amount of the rent is a really good standard to set for the income criteria.
Mike Simmons: Gross income, right?
Stephen Michael White: Exactly. So if they are meeting those income standards, some things are certainly overlook-able, no question. But some things I would deem to be not overlook-able, like an eviction.
Eviction is one of those things that even if it did happen a couple of years ago and they might be on the [straight narrow]. I always view evictions as being one of those things that if you’ve never been through it before it’s got to be scary as hell, that fear of the unknown right? But once you go through it that fear is gone and you lose that sort of fear and so you can always go back to, “Well I have been through this. I know how to get through it and I can come out on the other side of it.” And so the people that we see that have eviction records usually have multiple eviction records because they have been through it.
Once they kind of break the ice with that first one, the subsequent ones get a bit easier. So the eviction records are really, really important to steer clear of if you’re a landlord. Somebody that’s never had a history of evictions still has that fear of one. You know that their monthly rent is still the most important priority to them.
Is there a best time of the month to collect rent?
Mike Simmons: Yep that’s great advice. So okay let’s shift gears a little bit and talk about the rent a little bit. Is there a time of the month that makes sense for rent collection? How do most people handle that? Is there a better time of the month than others or does it really just not matter?
Stephen Michael White: The first of the month is obviously the standard but I’ve seen some landlords have some success with allowing the tenants upfront, in the beginning of the lease term or the rental term, to say what works well for them.
Some people, myself included, just so happen to have most of their bills are due on the first of the month. And then the first crushes them. Giving them the option to pay on the 15th instead of the 1st may elevate a little bit more stress from them, and ensure you get your rent on time.
So I don’t know if there is definitely a specific right answer but the key is to enforce whatever that is. If it’s the 1st or the 15th you have to enforce that it’s due on the 1st or the 15th. That doesn’t mean you put it in the mail on the 2nd. It means that I have it in my hand cashing that check on the 1st because that’s when it’s due. If they pay late, it’s just as important to impose and follow through with late fees. They don’t have to exorbitant. I’m talking $10, $15 or whatever it is that you’re imposing as a late fee. But you have to enforce those to set the standard. Letting them know there is no leeway here. When they know the fees are unavoidable, it’s amazing how much more important your rent becomes.
What is a standard fee for late rent payment?
Mike Simmons: Yeah and you mentioned late fees, what do you see as a standard out there?
Stephen Michael White: I would say $10 or $15 is probably standard. But it’s also important to make them incremental. So you know if you’re late, you automatically get charged with the $10 or $15 (or whatever it is) and then every day you’re late you get charged an additional $5 or $10.
So you know it’s just creating even more urgency to pay it as fast as they possibly can because they don’t want to be 5 or 10 days late and have the fee add up.
What are some of the do’s and don’ts of evictions?
Mike Simmons: Okay makes sense. And then evictions you talked a little bit about that. I think this is what scares tenants but I think it scares landlords too. I mean especially a new landlord who doesn’t know what to expect, or how it goes. What do they need to make sure that they do so that the eviction goes smoothly? What kind of writing needs to be there? Should they hire an attorney to do it or should they try to do it themselves? What are your thoughts on evictions? What are some of the maybe do’s and don’ts of evictions?
Stephen Michael White: Sure. Well, first and foremost just to kind of build off of what I was saying before about having everything in writing. Certainly the same holds true for evictions. It’s really important that you’re using a proper notices. Whether it’s a three day, or five day notice, or whatever it is that you’re choosing to use, it’s important to have this as documentation so that when you do present your case to the court you’re able to say they were issued this notice. You can go there with everything that they have signed upfront so again you’re presenting your case as a very professional landlord, right? I keep harping on that because it’s so important to really treat this as a business which is what it should be.
Should the 3-day notice of 5-day notice of eviction be state specific or can they be universal?
Mike Simmons: Yeah exactly. Now are these notices that you’re mentioning, the 3 and 5-day notices, are these state specific? Should people go to their state websites or are they pretty universal throughout the country?
Stephen Michael White: They are pretty universal except for California. California always wants to be different. So California has their own state specific stuff. to attorney that they can make that call and say, “Hey we have a guy that we have to evict.”
Obviously you never want to run into that situation, but what you also don’t want to do is consume so much of your own time and energy. Emotional energy is really what it comes down to. You want to be able to hand that off and know that it’s in good hands. Somebody who is qualified to take care of this and are looking out for your best interest, so you can move on and work on starting to find a new tenant to put in here. One that you’re not going to have to evict.
Should I get an eviction attorney? If so, how much does an eviction attorney cost?
Mike Simmons: Yeah I tend to agree with that wholeheartedly. I think that your time is worth more and like you said just the stress of dealing with it. Especially if you don’t know how it goes or you don’t understand the procedures. Having someone talk you through it so you don’t make a mistake. So you’re being professional if nothing else, right? Now what should people expect to pay? It probably depends on where you’re at I know, but approximately to pay an eviction attorney, does it cost $5000 or does it cost $500?
Stephen Michael White: Sure. Well couple of things about that. So what I would recommend if you’re starting from scratch, assuming you have no idea where to go to get an eviction attorney, of find somebody that’s really familiar with the process because what you don’t want to do is hire an attorney that might not be familiar with the process.
What I would recommend doing is what one landlord had told me. Because he was an investor in several different areas He went to the court and he looked at the eviction records. He looked for what attorney’s names or firms would show up more frequently. So he knew this was an attorney in the area who was used to dealing with evictions. This is the go-to eviction guy. So in my area in Western New York we have a guy who most property management companies around here use. He is the eviction guy and that just seems to be kind of what he specializes in. So you know what you’re getting with him. Number one he knows how the process goes in that area, he is not going to do anything that’s going to get you in trouble or going to lose the case for you. Or worse, you end up not even being able to evict the tenant because of some loophole for a misfiling or something.
Mike Simmons: Yeah I mean I think that’s a really good point, really good nugget there to go to the court house to look for the eviction guy. I did a similar kind of thing when I was looking for a REALTOR in my target, real estate investing area. I just look for REALTORs that were selling the most properties in that area. So it’s the same idea right? You’re going to the court file to see who the attorneys that are there day in are and day out. They obviously know the process.
Stephen Michael White: Exactly. So as far as cost goes, we’re talking a couple of hundred dollars for paying the attorney to do it for you. Each state obviously differs as far as filing fees but I think that if you can get an attorney who is charging you $500 or less you’re in good shape. Then beyond the eviction they can help you with the process of collecting on any judgments or past due rent that you may have after the eviction. They may do collections themselves, a lot of attorneys do. They might work on a contingency basis where it’s not going to cost you anything out of pocket. They will get paid if you get paid.
How much does RentPrep’s tenant screening services cost?
Mike Simmons: Okay so we have covered a lot of ground here. I’ve just been taking notes like crazy by the way! I’ve got a lot of things here and I think it’s going to be very helpful for me and I know huge for someone who is going to be a relatively new landlord. I have run down a ton of things that are going to make a huge difference for me.
Obviously you have a product called RentPrep, let’s talk about that for a second. Generally speaking what are the fees? Especially like you said, someone who is just getting into it for the first time and maybe won’t have a lot of rentals right up front. What kind of fees are they going to have to pay? What are they going to get for that?
Stephen Michael White: Well what really makes RentPrep great is that it caters to all different types of landlords. So if you’re the type of landlord that says I would rather make it a verification calls to the current and the previous landlord myself, we have products that do not include the verifications. But remember I mentioned that our Screeners are the ones compiling these reports so we do have the capability to actually make those phone calls.
So I will start at the top, if you wanted to have the full report, we call it the Platinum Package. It doesn’t get any better than this. You get every piece of data with it, including the verification phone calls. It’s going to run you about $30 and that includes the most important pieces of the data which is eviction records. And we search at a nationwide level not just on the state level because people don’t always just get conveniently evicted from the state that you’re searching in.
Is RentPrep’s pricing per applicant?
Mike Simmons: Okay let me jump in real quick. You said $30, explain that. Is that $30 per application? $30 per applicant?
Stephen Michael White: Per Applicant. So if you’ve got a husband and wife situation, usually what we recommend is getting the Platinum on one of them because in a lot of cases they are coming from the same previous landlord, the same current landlord so there is no point in making those phone calls twice. We’re going to kill two birds with one stone on one of those phone calls anyway. So that would be a Platinum for one, and then the next tier down for the other is a Pro report. Those are running about $20 and that includes everything that the platinum does, minus the phone calls. So it’s still going to include all that important data like evictions, judgments, bankruptcies, liens, and I think I may have even left out criminal records. The criminal records are really important to look into as well.
Obviously, you can tell a lot from the verification phone calls, things that you can never find on a database like did they receive noise complaints, neighbor complaints those types of things but criminal records a lot of times will reveal a lot of information about that tenant as well. So obviously you’re looking to make sure they’re not somebody who was just convicted of drug distribution or something, but really what landlords are looking for is do they have a history of disturbing the peace or things that may deem them as a nuisance to neighbors.
No neighbor wants to be living next to somebody that has the police called on them constantly. So you really should be checking criminal records, sex offender records. That’s an obvious one. Some landlords are bound by law to do sex offender checks based on proximity to schools and day care centers, things like that. So be sure that you know where your rental is, where it is in proximity to certain things that may require you to actually do sex offender registry searches as well.
Mike Simmons: Okay good point.
Stephen Michael White: So the baseline, Landlord Basic report will run you about $17. It’s evictions, bankruptcies, judgments, liens, and validates their social security number. And even this Basic report is still being hand complied by a Screener. So if somebody purposely gives you the wrong social security number, which we run into constantly, or they just flat out lied on their application, which we run into constantly, the Screener is going to be able to pick that up and catch these red flags. Often their name doesn’t match their social security number and we find the person who does match the social security number and they have three evictions.
Mike Simmons: Right. Okay. All right I mean that’s great. Like I said I’ve taken so many notes here it’s ridiculous. I’m just scratching things down as you’re talking but it’s really, really good stuff. I know for me I’m excited because this is a little bit new to me like I said and I really don’t want to make mistakes the last thing I wanted to do is to spend all of my free time dealing with problem tenants and I think that’s what keeps like I said a lot of real estate investors out of the buy and hold market is they just don’t want to deal with bad tenants and what I’m hearing is I don’t have to. You don’t have to deal with bad tenants. Sure there is going to be issues there is no doubt about that. But you don’t have to have bad tenants if you do your work upfront and maybe spend the time and the money to get it done right up front. You can save yourself that time and money at the end of the time, I mean the evictions I’m sure cost more than doing the right kind of tenant screening in the beginning.
Use your gut to make a decision on who you want to rent to, not just the tenant screening report
Stephen Michael White: Yeah I think you’re absolutely right but a lot of times too keep in mind that the tenant screening process doesn’t just start and end with a background check.
I had a conversation with the landlord not too long ago who made a really great point which was obvious to me but I just had never thought of it before. He called me on a report that we had done and the women was claiming that the eviction didn’t belong to her and fast forward after doing some research the eviction did in fact belong to her but at the time we were sort of up in the air with it, we weren’t sure evictions are not filed by social security number they are filed by name and so if you have somebody with a common name that poses obvious problems.
We’re doing our best to cross reference, make sure that it’s the right record which in this case it was the right record but the landlord made a great point to me. He said, “In dealing with this woman over the past couple of days regardless of what you end up finding out I don’t want to rent to her because I know what type of tenant she is going to be just based on me having these few conversations with her.” He says, ” I don’t want to deal with somebody that’s going to complain about everything or just kind of be a nuisance to me.”
And so beyond just the background check, beyond just the stuff that you can find on the records, tenant screening really encompasses a lot of different factors which really ultimately come down to what type of stress level do you want to deal with as landlord which is not much. You don’t want to deal with much. It really makes or breaks an investor like you were saying a lot of them don’t want to get into it because they don’t want to deal with those problems.
Mike Simmons: Sure.
Stephen Michael White: Well a lot of them get out of it because of those problem. So if you can go into right and off on the right foot and you’re getting the right tenants in there life just is so much easier not having to deal with those bad tenants.
Mike Simmons: Yeah. Super good advice. I mean you’re absolutely right about that. So all right, how can people get a hold of you if they want to? Obviously they can go to RentPrep.com and I suggest that you do that. I’ve been on there quite a bit today going through the blog, I mean just such good advice, such good information out there for anyone who wants to get into rental or real estate or if you already are and you just want to get some more information or you know just read some really good advice from some really knowledge people.
How can I contact RentPrep?
Go and take a look at that like I said you can go to RentPrep.com to look at the packages that are offered, all that kind of stuff. Where else if anyone place else I should get a hold of you or how should they, what’s the best way to contact you?
Stephen Michael White: Phone call. I mean it’s such a lost concept these days but really we take a lot of phone calls and the Screeners are well capable of being able to handle these kind of questions. So we get a lot of phone calls from landlord that just start with very basic questions, what do I do? What am I looking for? What should I do in this case? And while we can’t give you a lot of legal advice and we can’t give you advice on the decisions that you need to make. We can certainly help you and guide you and point you in that direction and make sure that you’re off on the right foot. So just a simple phone call during our business hour somebody is actually here to answer the phone and answer your questions.
Mike Simmons: Yep and I see that, I’m on your site right now and I can see you get the phone number up there so that was my next question, is the phone number there? But it is. All right, great. Right that is a [inaudible 0: 44:38] just picking up the phone and calling somebody. I mean I can’t text you, email you, contact you. I mean yeah exactly. I mean calling people is probably something most people aren’t even thinking about it anymore. So all right the number is there and they can call you and they should call if they have any questions.
Man it’s been a lot of fun. Thank you for being on. I really appreciate it. Great advice, great information. Going to be helpful for me there is no doubt about it. My listeners are going to benefit. I’m positive. I’ve taken so many notes. I’m going to put it up on the website. The show notes for the show can be found at [juststartrealestate.com/stephenwhite]. Stephen it’s been awesome having you on the show. I’m really appreciate it.
Stephen Michael White: Mike it has been a pleasure. Like I said I’m a fan and I love being on and I’m happy to answer any questions you or your listeners might have so I look forward to keep listening to your show too.
Mike Simmons: Awesome and check the show notes. If people have comments and have questions there for you then we can answer those as well but feel free to go to his website and give him a call like he said they got the answer, so no need to wander. All right Stephen White, I appreciate it like I said it’s been fun. I appreciate you being on. We will talk to you next time.
Stephen Michael White: Thanks Mike.
Mike Simmons: All right. Please also be sure to sign-up for my mailing list and I will send you the Top 5 resources I think every real estate investor should know about. Also stay tuned for the upcoming announcement of my new coaching program. I will only be able to take on a few students initially and I will be telling you exactly how to apply in the next couple of weeks. I’m excited about this program I know I’m going to be able to help a few people either launch their real estate investing business or take it to the next level in 2014. Okay until next time. If investing in real estate is your dream there is only one way you can make it a reality. Just start.