17 Mar Bonus #6: 14 Mistakes New Real Estate Investors Make
We’re back again in the bonus section of my real estate mistakes series! If you want to catch up on the whole series, you can do so at my Youtube channel.
Bonus #6: Failing To Prequalify Tenants.
New landlords often don’t understand some of the processes that tenants must go through. There are a couple of things that must be done to prequalify your tenants.
First, run a credit check. You would run a normal credit check which means you look at their credit score and what their history has been. If their credit score has been 600+, that’s a good place to be for low-to-medium income properties. If you get into more higher-end, luxury properties, you want to be in the 680+ range.
But I’ve had some tenants who came to us and one of the reasons they couldn’t qualify through a credit score is because they had unpaid medical expenses. If you looked at the rest of their history, they were fine. They had paid their rent and credit cards on time, but the unpaid medical bills knocked their credit score way down. Depending on the circumstance, I use those unpaid medical bills as an exclusion to determine whether or not that tenant is qualified. If you’re not sure, and they give you the reference from their last landlord, you can call that landlord and find out if they paid on time.
Secondly, get a criminal check. There you’re looking primarily for any kind of drug use or drug manufacturing. One of the greatest problems with rental properties is people who rent them for meth labs. I’ve covered in this series how to make sure you get into your property at least once a month to look for the signs of drugs. Now primarily we look for drugs, but obviously if there’s been some severe violent activity, you want to consider that.
Thirdly, go see where they live now. I learned this a long time ago from one of my mentors in real estate. If a tenant comes to me to rent and I’m not sure about them, then the best thing to do is go see where they live. If they say they’re interested in renting and have filled out the application, then you visit them unexpectedly at their current place of residence. Knock on the door, and look around at their house, their car, their yard. Look to see how nicely they keep things. I always look and smell for certain things. If they keep a tidy house now and didn’t know I was coming, then it’s probably a good sign that they’re going to take care of my property. Obviously, it doesn’t have to be perfect, but it should be well kept.
There is now a national tenant base that you can Google. You can go in and find people who have rented in other states. Don’t rent blindly. Make sure you prequalify your tenants and call previous landlords. I guarantee you that will save you a lot of heartache.
Thanks for watching and I hope this was helpful!
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