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Cliff Hockley, CPM
President, Bluestone & Hockley Real Estate Services
Zeke had been waiting a long time for this day. His Aunt Millie finally had decided that he could help her manage her investment properties. She owned three apartment properties and about ten houses, a small rental empire she had built with her husband. The income from the properties had sent Zeke through college.
Zeke was 30 now, had a young family, and ran a successful carpet cleaning business, but he had always been a little envious of his aunt. Her trips three times a year to Greece and the Bahamas made him think there was a lot of gold buried under all of that real estate.
When Aunt Millie asked him to manage the Golden Meadows Apartments, a 30-unit blue-collar income property located close to town, Zeke was very enthused. To get started he inspected all of the units, met all of the tenants, and started collecting the rents and paying the bills. He was a tough landlord and enforced all of the rules in a rather highhanded way. Within one month, his on-site manager had quit and he had ten vacancies.
He knew he was doing something wrong, but he didn’t want his aunt to know, so he borrowed the rent for the ten vacant units on his credit line and made sure his aunt got all of her money. Then he found a new on-site manager, and together they filled up the property with the next ten tenants that applied. He was never so happy as when the last tenant moved in. He thought all of his problems were solved.
Then the police called; Tenant Number Ten was wanted on a warrant issued in another state. Tenant Number Nine could not pay her second month’s rent because she was unemployed. Tenant Number Eight had a band and practiced all night—to the dismay of the neighbors. Tenant Number Seven was an undocumented worker and Immigration and Naturalization Service wanted him out of the country. Tenant Number Six had a large extended family that moved into her two-bedroom apartment. Tenant Number Five had a boyfriend that broke the door down twice in one week. Tenant Number Four had a suspicious odor coming from his apartment, much like the smell of gas. Tenant Number Three never seemed to go to work, and his dog was urinating all over the flowers and killing them. Bill collectors bothered Tenant Number Two all of the time; Zeke learned that she had no furniture in her apartment and was evicted from her last place. Tenant Number One was Zeke’s wife’s best friend and she never had any money to pay rent.
To top it all off, the new on-site manager ran off with the rents they collected the next month. It was Friday night, and Zeke was devastated. Then Aunt Millie called. She mentioned a moving van at the Golden Meadows Apartments and that the property looked trashed. He promised to be right over.
Fifteen minutes later, he was at her doorstep, telling the story while blubbering all over her. She grew very angry, but told him that together they could work out these problems. He was surprised that she was even willing to let him be involved. She said, “One day you will inherit these properties, and I want to make sure you are successful.”
So they went to work. First she reminded him that it is illegal to discriminate based on a person’s color, creed, religion, age, sex, handicap, sexual orientation, familial or marital status, and/or source of income. She suggested they get rid off all the tenants Zeke had rented to, keep the good ones, and start from scratch.
“First, we must screen our tenants.”
She made a list for Zeke:
- Landlord references from previous three years are satisfactory.
- Monthly income is at least three times the amount of monthly rent.
- Verification of employment.
- No evictions on record.
- No criminal history.
- Potential tenant possesses a valid social security number and I.D. card.
- No collections within the last 12 months.
- Clear credit record, pays bills on time, no outstanding balances.
- Has not filed bankruptcy within last seven years.
- Pet policies will be followed.
- Number of persons living in unit will not exceed limit.
“The screening will help us make sure they can pay the rent and be peaceful tenants. If they cannot meet these standards, we don’t want them. Even with this screening, don’t take cash for rent from any tenant, and make sure that the people who filled out the applications are the ones that really moved in. Once they have moved in, the on-site manager is responsible for making sure they don’t sneak in additional people to live there,” explained Aunt Millie.
After four months of getting rid of bad tenants, screening for new ones, and fixing the damages, Golden Meadows Apartments was once again showing a positive cash flow.Zeke could live with himself, and Aunt Millie was convinced that he had learned an important lesson about tenant screening—which is what she had planned in the first place.
Zeke decided that managing rentals was more complicated then he thought, and that it took a lot of work to find that pot of gold. He had learned a lot from his aunt during the next ten years before she gifted the properties to him. They became a good team, and when she finally retired, she knew that, if nothing else, Zeke would know how to screen for good tenants.
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