My $2000 Tenant Screening Mistake

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**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!

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