A word of warning—when you market in this way, your response rate will drastically increase, so be prepared. Also understand that a lot of these individuals will be exactly what you do not want, so you must get good at screening them out and finding the right ones. This will take some time, but is it worth it if they don’t move out for years? It’s a lot easier to spend some extra time now filtering through some extra applica - tions than to have to ”turn” a home in a year or two. In the long run, it will save time and money. Next, be sure to include a screen- ing question asking why their credit score is low. Some people will lie, but most will be honest. If the rea- son they give concerns you, you can move on to the next applicant. You are looking for the right tenant—the one who would have a great credit score if it weren’t for a life event that destroyed it. So, be patient until you find that person. If you are comfortable with their explanation, you will need to pull their credit report and try to verify their story. Verifying it will likely require some additional research or calls, but always do your due diligence—as you already do now. If you can’t confirm their story, then move on to the next prospect. Keep doing this until you find a possible candidate. JUDGMENTSAND COLLECTIONS You will also want to find out if the candidate has any judgments or collections against them. If they do, this is a huge red flag! Remember, the goal is to find a good payer who unfortunately had a bad situation occur in their life that was beyond their control and they are recovering from—not someone who just doesn’t or can’t pay their bills.
(payment plans) and take every - one’s situation into account, not just their own. They have no judgments or collections because they did the right thing. These are the tenants you want. What you are looking for is someone who may have a payment plan they are paying off monthly. Their mindset was to work out a solution and pay it off. They didn’t just stick their head in the sand and ignore the situation, forcing the judgment or collection. So, if you want a good long-term tenant, find someone who used to pay all their bills but had an unfor- tunate situation that caused them to be late on payments. The situation ruined their credit, but now they are back on their feet and have payment plans in place. These tenants are gold. They pay their bills and work things out when things go south— and they have bad credit so they can’t but a home any time soon. •
This distinction is important because it tells you about the can- didate’s mindset when things go south. If your goal is to keep your tenants in the home a minimum of six years, life events will most likely occur. It is very common to have some sort of emergency come up in everyone’s life (divorce, death, layoff, etc.) during a six-year period. So, the question you want to try to answer isn’t if something will happen but rather what happens when it does . There are two mindsets people can have when these events occur. One is they become selfish and care only about themselves. The have the atti- tude “I have to do what I have to do to take care of myself and my fami- ly” only. These are the individuals who cast you aside and ignore their obligations to you. They are the ones who have judgments and collections against them. These are the candi- dates to avoid. Someone with a judgement or collection on record didn’t work out a solution with the company or indi- vidual they owe money to and was basically taken to court. For exam- ple, they have an $80 collection on their record from a phone company. If they didn’t pay an $80 phone bill, what do you think they are going to do with your $1,000 rent if a life event occurs? The other mindset reflects some - one who during those unfortunate moments communicates with you and tries to work things out. They will create workout agreements
Eager to learn more about real estate investing? Please visit www.thinkrealty.com/courses for additional subject matter information from our Resident Experts.
Greg Slaughter has been investing in single-family homes since 1999. He entered the industry full time in 2002 when he retired from McDonald’s Corp.
after 19 years. Since then, Greg has been involved with more than 1,000 real estate transactions, doing a lot of flips and creative finance deals. He also currently self-manages his portfolio of rentals in multiple states.
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