If you are ever feeling down about your job or need something to pick yourself up, click over to Day Job Nuker.com.  The tagline on his website says it all:  “I’m Going To Nuke My Day Job And Say Goodbye To THE MAN!”.  His goal is to retire from corporate America by 7/1/2010.  I love the fact he has spelled out the date.  Go and check it out!

**Update 10/29/07*** After you read this part 1, read about the Happy Ending***

I have been leasing apartments for some time and like to think I know what I am doing. Last week I even wrote about screening tenants. I own a large number of rental properties in Minneapolis and other suburbs.

My goal in making the confession below is that even with years or experience, we all make mistakes. We must learn from them to be successful. Many newer investors get down on themselves when they screw up. In fact, some of those mistakes actually turn newer landlords sour on the prospect of continuing to own investment properties or to buy more. Hopefully you can learn from my recent mistake and continue to be successful!

I pride myself on being detailed oriented and never making mistakes, but I am quick (and humble) to admit when I make one. Here is my confession: “I cut a corner and didn’t follow my own advice in doing my tenant screening and now it is going to cost me probably $1000-$2000 in lost rent and advertising/placement fees”.

Here is the story:
A tenant in one of my 3 bedroom apartments decided not to renew her lease. I have been leasing apartments for years and I have a standard way of advertising them: I put out my standard sign, put an ad in the paper and in Craig’s List. I had some showings, but no one was very interested as this apartment had not been renovated in several years and it showed poorly.

I received a call from a woman interested in seeing the apartment, about 10 days prior to the current tenant moving out. We set the time for the next day, she arrived promptly, I showed her the apartment, I asked her all my questions looking for Red Flags, she said she liked it and filled out a rental application. When we met, she said she had a 3 bedroom voucher from Section 8. I have worked with Section 8 tenants (and coordinators) for years so I am happy to have a new tenant with Section 8.

I processed her application that night and everything was within my guidelines. The next day I spoke to her current landlord, where she had lived for 4 years, who gave her a good review. I then spoke to her boss, at the job she held for little over 3 years, and he was happy with her work and said she was a good employee. I called her Section 8 coordinator and left a message.

The prospective tenant and I met on the 27th to sign the lease. She brought the Section 8 paperwork and said she would fax it into her coordinator immediately. Section 8 is traditionally very slow, in Minneapolis, to respond so I know it will be 2-3 weeks before the paperwork is processed and didn’t think anything more about it. She gave me her deposit, moved in and everything is great.

On the 18th, I receive a call from my new tenants Section 8 coordinator. I am expecting the coordinator to go through the standard questions and ask me where I want the check sent. Unfortunately, she begins to tell me that my new tenant no longer qualifies for a 3 bedroom voucher (she now has a 2 bedroom voucher) and can only pay $835 per month (this is $165 less than the monthly rent). If you don’t know anything about Section 8, the tenants can only pay a percentage of their monthly income to rent. They are not allowed to go over that even if they wanted to. Even if my tenant had an extra $165 per month from whatever source, Section 8 would not allow her to rent this apartment and I will not take money “under the table”. According to the coordinator, the only solution was for the tenant to move out immediately.

Consequently, the tenant must move out of the apartment only 30 days after moving in. I now have 2 weeks to rent a 3 bedroom apartment in the more difficult time of year. In addition to putting my standard advertising process into action, I called a friend that owns a property management company and gave him the chance to fill it. The advertising/placement could cost me as little as $164 for the ads to as much as $1000 for the placement fee (one month’s rent). If I can’t fill it by the 1st of the month, I could also lose that month’s rent ($1000).

Because I cut a corner and did not follow up with the coordinator PRIOR to renting the apartment, this mistake could cost me up to $2000. Understand that I am not telling you this story to frighten you off from owning investment property or think poorly of me. It is simply an example of why you must always follow your guidelines, whether for tenant screening, rent collection, or any other procedure you use when owning investment property. This will help you from having to learn expensive mistakes!

Hopefully, as a landlord, you are already using Craig’s List to find new tenants.  This is a free and powerful tool to quickly advertise your apartment openings.  I have good success for most of my properties using Craig’s List, but depending upon the area the apartment is in or the time of year, I may have to take an additional step that I call:  Reverse Prospecting for Tenants on Craig’s List. 

As you know, on Craig’s List, there is the section that you post available apartments in, but have you ever looked in the section labelled “Housing Wanted”?  There are 1000′s of entries in this section and with probably 20-50 being added every day.  All these people are looking for places to live, but most people will post something on Craig’s List and only come back once per week.  Why not do some simple searches on this list and see if anyone may be looking for what you have available and contact them?

To do Reverse Prospecting, go to the “Housing Wanted” section of Craig’s List.  In the header section, there is a search area.  Type in the city in which you have an apartment opening.  If the initial search of the city name does not turn up any leads, try neighborhood names and try adjacent cities/neighborhoods.  Read each one of the results.  If any are close to what you are offering, click on their “Reply to” address and send them a quick email that says something like this:

Hi.  I found your ad posted on Craig’s List in the Housing Wanted section.  I have a 3 bedroom apartment in Minneapolis with large bedrooms, a new kitchen, garage, and washer/dryer.  The rent is $1100 and it is available November 1.  Here is the link for the apartment:  http://minneapolis.craigslist.org/sha/453132627.html

Are you still looking for a place?  If so, please reply to this email and we can discuss it further. 

You will be surprised how many people will at least reply to you (positive or negative).  You will be further surprised how many prospective tenants you can pick up this way.  Give it a try the next time you are striking out on finding a new tenant.

Our last Investor Club Meeting for 2007 will be slightly different in November. We will be having a Happy Hour to allow everyone to get together and network, prior to the holiday season. It will be held at Bar Lurcat in Downtown Minneapolis on Thursday, November 8, 2007, 5:30pm to 8:00pm.

More details can be found here: Investor Club Meeting (please RSVP on this site so we have good numbers for the Bar).

Everyone is welcome, even if you have never attended an event before.  Please also bring your friends and significant others.

Thanks!

A prospective tenant calls you and wants to see that 3 bedroom apartment that you have for rent.  What types of “red flags” should you be watching and listening for as you talk to the tenant, show them the unit, and process their application?

• When prospective tenants are late to the showing appointment and don’t have a valid reason, I am immediately skeptical. 
• If you are unable to verify their employment, income, or rental history, be concerned.  I had a very interesting discussion with a prospective tenant when I told him I was going to call his current landlord.  It went something like this:
  • Me:  “I see on your application you didn’t list your landlord’s phone number or last name” 
  • Him:  “I don’t have the phone number for my landlord”
  • Me:  “How do you call him if something needs to be fixed”
  • Him:  “He never fixes it anyway”
  • Me:  “What is his last name”
  • Him:  “I am not sure”
  • Me:  “Where do you send the rent?”
  • Him:  “He stops by around the 5th of the month and I pay him”
  • Me:  “Do you know where he lives”
  • Him:  “No”
  • …At this point, I was convinced he was lying to me, did not want me to call his landlord, or simply irresponsible.  All traits I don’t need in a tenant.
• I will often call the prospective tenant once or twice on the phone to see how much noise is going on the in background.  I am amazed how often I can’t even hear the prospect on the other end of the phone because of the yelling and TV blaring!  They are most likely going to bring this chaos to your apartment and disturb the neighbors.
• How a tenant carries themselves, dresses, and what kind of car they drive also gives me some clues as to their personality.  Now I have been surprised by a jean wearing professional that drove a BMW, rented a new townhouse I have, and lived like a pack of dogs, but I am often right!
• Because I charge $25 as an application fee, I will occasionally get a response “I won’t have the $25 until next Friday [6 days from now].”  I do rent in some lower-income neighborhoods, but if you were planning to rent an apartment and 90% of landlords in Minneapolis require an application fee, shouldn’t you have that money saved up?
• I am often receive many calls on my apartment ads during the last 5 days of the month.  I have to guess that they simply woke up on the 25th of the month and realized they need to be out of their current apartment on the 30th and then decided they should go and find a new place to live.  As enticing as it is to take one of these tenants instead of having an open apartment, you need to screen them extra carefully.
• Occasionally, when I am concerned about how a tenant may treat my apartment, I will actually require an on-site inspection of their current apartment.  How clean it is (especially the kitchen), tells me a lot.  If I see lots of grease on the stove and bathroom is nasty, I pass on them.
• When processing their application, if they “forgot” to tell me anything about anything derogatory on their application, I am concerned about what else they are hiding. 
• Constant moving of apartments or job is also concerning as it shows instability or problems. 

Some of these red flags can be identified on the phone prior to booking the appointment.  Save your appointments for the people that have passed your initial screen.  With some observations of your prospective tenant and some simple “gut checks”, you can often weed out potential problem tenants before they ever cross your threshold. 

The City of Minneapolis, the Minneapolis Police Department’s Community Crime Prevention, and the Minneapolis Housing Inspections department are working together to put on a Rental Property Owners workshop in Minneapolis on Thursday, October 25, 2007.  I have attended these events and found them to be a great resource even if you don’t own property in Minneapolis.

Investment Property owners will learn ways to keep their properties free of drug dealing and other illegal activity.  Other topics presented include:

• Working with the Minneapolis Police Department
• Working with Minneapolis Housing Inspections
• Tenant issues
• Hennepin County Housing Court
• Arbitration as an altermative to Eviction

This event is also a great opportunity to network with other Minneapolis Investment Property owners.  To get a registration form, click here.  The cost is $20 and includes a box lunch.  The details and location for the event are:

Thursday, October 25, 2007
5-9 PM
St. Mary’s Greek Orthodox Church
3450 Irving Ave S
Minneapolis, MN

You must RSVP by Friday, Oct 19 by emailing ccpsafe@ci.minneapolis.mn.us or calling the message line at 612-673-2812.  Plan to attend.