Property Management Advice for Investors: Lessons in Tenant Screening

As an investor myself, I think it is important to provide real property management advice for investors. Particularly important are some valuable in lessons in tenant screening. Oh, where to begin. But first…

How I Became My Own Property Manager

I never intended to manage my own investment properties–I sort of fell into that role as a bootstrapping investor and learned the hard way. Unlike the mature markets in Fairfax and Arlington Counties, the market I invested in (in Virginia’s Shenandoah Valley) doesn’t yet offer cost-effective residential property management for small investors like me. So, I had to plunge in and learn by trial and error. From becoming a social media tenant sleuth to learning how to sniff out good contractors, every bit of wisdom I gleaned cost me time and money. And along the way, I learned some pretty expensive lessons. I think a few of those lessons are worth sharing with other investors and would-be landlords.

Like a lot of people new to real estate investing, I got my foot in the door by using a combination of home equity loan and savings to purchase several tiny income properties at a time when prices seemed to be rebounding after the lows of 2009 and 2010. My goal was to net some income each month and (hopefully) to see some appreciation in a burgeoning market, over five or six years of ownership.

I joined a real estate investors’ networking group and sought out the best advice I could get. “Don’t lose money each month” was what it boiled down to. And what was the surest way to lose money? Bad (as in nonpaying and/or destructive) tenants.

The Tenant Problems Begin

I had a little problem, however. The houses I had purchased came with tenants (and leases that had more than six months left on them). While I felt a bit nervous about my rough-around-the-edges tenants, I figured I could manage them if I just stayed on top of things. And maybe I’d even end up with a good tenant or two. It could happen, right?

Wrong. From the beginning, I had problems with all my tenants. Problems collecting rent and problems with maintenance. Problems with town ordinance violations and problems with neighbors who didn’t care for my tenants’ habits. The best of the lot were the elderly couple who moved out in the middle of the night the week after I bought the house. They took a couple of major appliances with them and disappeared without a trace. But they did vacuum before leaving, at least. Which was very thoughtful of them.

Screening Tenants

So, I set out to find me some new tenants. I wrote an ad for Craigslist, uploaded some pictures of the cute little Cape Cod house, and clicked Publish. I figured before I even took an application I’d do whatever initial screening I could. I’m a journalist, after all–and I know my way around digital research.

About five minutes went by before the first eager inquiries started rolling in. I cracked my knuckles and started right in on the Facebook sleuthing–which my teenaged daughter informed me was more appropriately named Facebook-stalking. But hey, after the great midnight appliance heist, one couldn’t be too careful, I told her. I was only performing my due diligence as a responsible landlord and investor.

First up: Delilah Shuttleworth (not her real name). She was a hardworking young mom, she informed me–just making it on her own due to her positive outlook while looking out for her darling toddler, who was the joy and light of her life. She had included a couple of photos with her inquiry, which backed up that persona. The head shot looked like it might have come straight out of the annual church directory. Awwwww. And another one pushing her chubby little two-year-old on a swing. Sweet. Oh, and she wished me a “blessed day” in her closing.

Using Social Media for Initial Tenant Screening

On to Facebook. There was Delilah in the profile pic–but with a ferocious animal print ensemble rather than the Peter Pan collar I’d seen in her email. Plenty of photo albums available for public viewing. And, lo and behold, nearly all of them show her downing shots (or unconscious). And right at the top of her profile is a request for money for the incarcerated boyfriend. (It even came associated with an app called JPay. The smarter way to pay inmates.) One friend commented that she’d maybe make a donation to the cause if Delilah would pay her back from last Friday night. Delightful Delilah had snarled back at her with a string of four-letter words that’d make a sailor blush.

Three hours later, I’d completed Facebook research on all Craigslist responders whose emails provided last names. And I’d determined that they were quite a fun-loving, free-spirited, photo-sharing bunch–but alas, not exactly tenant material.

The Tenant Problems I Never Anticipated

I’d subsequently learn a number of tricks in ad copywriting to keep me from even having to do that up-front Facebook detective work. Asking for a work email, mentioning online payment policies, requiring a preliminary application to be considered for a showing, indicating that a broker would be in touch to take application fees, etc. Those measures helped me at least to filter applicants for minimally stable jobs, up-to-date financial practices (such as having a checking account), and incomes. And subsequent credit checks (using the application fees) helped further refine the list, of course.

What were the debacles and time-sucking inconveniences my screens didn’t help me uncover? A history, in one case, of creating “lawsuit traps” and suing people. A drug addiction. A hoarding problem. An employer who went out of business the week after the lease was signed.

What a Professional Property Manager Offers

Would a professional property manager have been able to spot and avoid these problems? Maybe not all of them. But in placing tenants on my own I’ve come to realize one important thing: As a landlord, even when I tell myself I’m keeping emotional distance, I am still too close to the situation to maintain objectivity. I am proud to be providing renters with affordable housing, and I truly want to place tenants who seem to satisfy my criteria.

But it’s more than pride in placing tenants. There’s plenty of fear in this landlord job too. I fear seeing one of my houses sit empty, because of the drain to my bank account (and thus my ability to do things like meet all my own bills, plan vacations with my kids, or grow my primary business). Finally, I have little time for the extra care an empty house requires of me.

No, I’m not objective about my properties–or the tenants who want to live in them. How could I possibly be?

I am emotionally involved in my own properties–no matter how many screening techniques I learn or how much wisdom (and healthy skepticism) I gain. If my market had offered me an experienced property manager specializing in single family homes, I have no doubt that I’d have been better off hiring someone to bear that responsibility (and maintain that unblinking eye to the bottom line).

A property manager with years of insight into tenant issues, applicant red flags, and local employers could have avoided many of the traps I fell into in my push to keep my houses from sitting vacant.

Not to mention saving me hours of time being horrified yet strangely fascinated by applicants’ lives on Facebook.

If you would like to learn more about WJD Management, please review our comprehensive Management Program guide. If you are ready to rent your home, feel free to take advantage of our exclusive FREE Rental Market Analysis. Finally, don’t forget to connect with us on social media! Follow us on FacebookTwitterLinkedInInstagram, and Pinterest for tips, ideas and updates.

What Does a Property Manager Do?

We are often asked, “What does a property manager do?” It’s a great question—and we have a simple answer for it:

“We do everything you’re going to have to do if you don’t hire us!” Here are a few of those challenging tasks…

Find the Right Tenant

Make a mistake on your choice of tenant and you’ll pay for it—in time, money, and possibly legal troubles. Placing a good tenant yourself actually requires a series of steps.

You must first determine the fair market rental value for your home before advertising for a tenant.

    1. Once you have determined the rent you’re going to try to get, it’s time to advertise.  You can use Craigslist (or other similar classified ad sites) where listings have to be renewed every week. Or you may engage a Realtor who will list your property with the Multiple Listing Service, create the lease, maybe conduct a move-in inspection and then walk away from the transaction.If you list the home yourself, you’ll need to be extremely careful that your advertisement does not violate any of the multiple state and federal Fair Housing requirements.
    2. Once you have found an interested party, you must qualify them to be certain they are a good credit risk. Their employment must be verified, as well as their rental history (with references obtained from current and previous landlords). And if your applicant’s credit score and debt to income rations are not within an acceptable range, you’ll have to start the search all over again.

Write a Good Lease

After successfully qualifying the tenant’s application, it’ll be your job to write a lease that’s both legally compliant and completely enforceable.

What does that mean, exactly? First, you’ll have to determine whether your lease will be governed by Virginia Common Law or the Virginia Residential Landlord and Tenant Act. And then you’ll have to make certain that the document contains all of the appropriate requirements for your property and is legally enforceable.

Once that’s taken care of, there’s the matter of the security deposit. It must be placed in a separate escrow account, where it has to remain untouched throughout the tenancy, unless it’s used to offset tenant damage. Comingling of funds is a great way to wind up with a serious legal problem!

Fix Things that Break

If something breaks, leaks, bursts, or simply goes kaput—it’s up to you to determine the cause of the problem. For example, did the eight-year-old washing machine die of natural causes (thus constituting reasonable wear and tear), or did it stop running because the tenant abused it? Either way, you’re going to have to fix it. And if it was the tenant’s fault and they’re going to be charged for the repair, you will bear the responsibility of thoroughly documenting the cost with a legitimate contractor’s invoice.

The same same holds true, by the way, for any damage the tenant may cause throughout the tenancy; do-it-yourself invoices are typically not honored by the courts should the tenants take issue with them.

Collect Rent—and Handle Evictions

In the event the tenant stops paying rent, you must do your best to collect it by sending written correspondence and making phone calls. When all that fails and you determine that you must evict them, the law requires that the tenant be sent a legal notice instructing them to pay or vacate the premises. Following that measure, a lawsuit must be filed in court. At the time of the hearing, you or your representative will have to appear before the judge. If the court rules in your favor, you must coordinate the actual eviction with the sheriff’s office and provide the necessary manpower to remove the tenant’s belongings.

Keep Track of Income and Expenses

Finally, there’s the task of accounting. Tracking the income and expenses for your rental property is not merely a good financial habit—it’s the law. You must keep track of all gross rents collected and report this income to the IRS on a specific schedule (form), attached to your 1040. You must also keep track of all legitimate expenses to offset the income when you file your tax returns. The IRS is noted for thoroughly vetting these itemized deductions (and auditing when they flag inconsistencies). So, it’s critical that all of your expenses be recorded and thoroughly documented.

So, what does a property manager do? All the stuff you’ll have to do yourself in the absence of a management professional–market research, advertising, tenant screening, legal document creation, rent collection, escrow accounting, maintenance and repairs and more–while also keeping you on the right side of the law and out of the courtroom.

David Norod is the principal broker of WJD Management. He enjoys keeping his 400+ property owners up to date on the best ways to keep their homes rented and running smoothly. When he’s not managing properties, he’s playing classic rock in local clubs with his band Off The Record.

Agent Guide! 10 Rules for Simplifying Rental Showings

Are you looking for tried and true rules for simplifying rental showings? Let us help you! Here are 10 Rules for Simplifying Rental Showings.

Call 1st or appointment only? Wait for callback or show the property? Help!

Agents, we’ve heard you. Here’s your 5-minute guide to rules for simplifying rental showings–courtesy of WJD, the Northern Virginia property management firm with more than 30 years’ experience in residential rentals and leasing.

Read more

Realtors: How Property Management Referrals Build Your Business

Realtors, are you wondering how property management referrals build your business? Get great advice on how property management referrals build your business from Top-Producing Agent Beth Kenney.

Introduction:

Recently, in an effort to thank the Northern Virginia Realtor community, WJD Management sponsored its first-ever contest drawing for agents. The prize was reimbursement of a full year’s MRIS dues—a $660 award. Real estate agents are the lifeblood of a firm like WJD—especially since we operate without any affiliation to a sales brokerage. We figured the start of a new year was the perfect time to offer a gift that would give a boost to one hardworking Northern Virginia agent.

The contest was administered by an independent contractor (and the name randomly drawn by a software application)—but, as luck and coincidence would have it, the agent whose name was drawn is one we’ve worked with many times over the years: Beth Kenney, of Berkshire Hathaway Homes Services (BHHS) PenFed Realty in Reston.

In conversations we had with Beth after she received her prize check, we learned a lot about what’s motivated a top-producing Realtor to refer well over 40 clients to WJD over the span of her two decades in real estate. For agents who wonder how a property management firm can benefit their business (i.e., help their clients), read Beth’s story:

From In-House Property Managers to Outside Referrals

NVAR Lifetime Top Producer Beth Kenney

NVAR Lifetime Top Producer Beth Kenney

When I started out selling real estate, there was a property management firm housed in the same Vienna office I worked from. You’d think it’d make all the sense in the world for an agent to use the in-house property management arm of their brokerage, and it made sense to me at the beginning too. But honestly, I had such negative experiences with that property management company that it led me to be open to other avenues.

And when I stopped and thought about it, why wouldn’t I want to look beyond the brokerage I worked at? I believe you have to be super-independent—and I’m never a blind follower of anything. Just because some service is located conveniently within my own company doesn’t mean I should use it. In fact, that might be the biggest reason not to use it. When you look for outside vendors, you’re guaranteeing a measure of accountability. Even more than that, you’re avoiding even the appearance of a conflict of interest between your clients’ needs and your (or your brokerage’s) financial interest.

I like showing my clients that what they need is important enough to look outside my own company. And they’ve always appreciated that.

Plus, it’s pretty awkward when you make an in-house referral and your own company lets you down. When you refer to independents like WJD, you can hold them accountable, since they know you owe them nothing, and they have to earn your referral every time.

Build Trust First. The Listings Will Follow.

build trust with real estate clients

The key to success in real estate is building trust–over time–with your clients.

It’s been as much about trust for me, though, as it has been about accountability. My goal is always to build trust—first and foremost with my clients. And from the beginning, David Norod at WJD built trust with me. Actually, just as a side note, David was the person who convinced me to get involved in real estate in the first place. I was in the same building as him—a college grad, magna cum laude, answering phones.

“Why are you doing this?” he asked. “You’d be awesome in real estate!”

And the rest, as they say, is history.

I feel lucky that I found David, a property manager I could trust with my clients—not to mention someone I genuinely liked. And property management is what he does. It’s all he does. I know David’s motivation will always be there to make my clients happy as their property manager, because this is his bread and butter. Unlike the property management arm of that first brokerage I mentioned, he doesn’t have a sales business to fall back on if he lets his rental clients down. He has to please them.

How Does the Property Management Referral Process Work?

So, a typical referral would play out something like this:

I have clients who need to get a certain price on their home or it’s just not worth it to sell. Or they have a tight timeframe to sell before leaving the area. And, whether because of price or timing (or both), they decide not to sell.

That’s the point at which I say to them, “This just may not be the right time—and that’s okay. Let’s hand it over to WJD and let them take care of everything for you until it is the right time. They’re specialists. And by the way, their rates are in line with everyone else’s.”

My job is easy after that, since WJD handles everything. And it’s always worked out well. Every client that I’ve referred who’s ended up hiring WJD has been pleased. So I benefitted. I provided a valuable resource to my clients. And that’s a huge part of my business. I provide great resources.

 “Who Will Take Care of My Home When I Leave?”

property management client referrals

Your clients love their home. They want reassurance that it will be cared for as they would care for it.

People go to their Realtor all the time and say, “Who can manage this place for me when I leave? Who’s going to make sure it gets taken care of the same way I’d take care of it if I were here?”

Will an arm of a sales brokerage take the best care of your client’s property? I really don’t think so.

WJD’s a pure value-add in my business, because I can honestly tell someone who asks those questions, “Don’t worry. They’ll take great care of your home. Whether you decide to sell it after renting it out or to come back and live in it, you’ll be happy. You won’t have to constantly worry.”

The “Zoe’s Kitchen Effect” (and Letting Realtors Know They Matter)

Like the favorite Vienna eatery, Zoe's Kitchen, WJD is "making it fun"--offering contests, giveaways, and chances to enjoy community at the local level.

Like the favorite Vienna eatery, Zoe’s Kitchen, WJD is “making it fun”–offering contests, giveaways, and chances to enjoy community at the local level.

 

And by the way, I really like the way WJD is now reaching out to Realtors now by offering prizes and making it all fun. It kind of reminds me of Zoe’s Kitchen in Vienna, giving people a free entrée just for stopping by. The free entrée gets folks into Zoe’s Kitchen—and once they’re there, they see how great a place it is and become regular customers. I think contests and giveaways are a nice way to let Realtors know they matter. And they can only benefit by learning more and sharing a great local resource with their clients.

(Note: If you missed WJD’s last contest, no worries. You can get an advance entry into the next one–an all-expenses-paid NVAR dues award–by signing up here.)

My advice to other agents is this:

It’s not really about the money you might earn today—making a referral to a professional property manager involves long-term thinking. Sure, it’s nice that you’ll end up with a client referral fee from sending your clients to a firm like WJD. But that’s nothing compared to what you’re really building—which is a relationship.

A strong, stable relationship with clients who will eventually list with you when the time is right. Because their home was well taken care of when they needed the help the most.

For more advice on how property management referrals build your business and information from WJD Management follow our blog and find us on Facebook @wjdmanagement, Twitter @WJDManagement, and Instagram @wjdpm.

Property Management Software for Single Family Homes

Did you know that WJD Management helped to innovate the only property management software for single family homes that specializes in the Washington DC market. Our clients are local and we wanted their data to be local too. When software for the property management industry moved into the cloud, WJD Management’s remained local—in the truest sense of the word. Here’s our story of how a 25-year relationship with a Northern Virginia software developer transformed our business—while allowing us to co-create the exact technology we needed to serve our Northern Virginia clients.

Back in the early 1980s, right at the advent of the personal computing movement, a Fairfax County programmer named Frank Cockrell decided there must be a better way to keep track of the myriad bits of information involved in managing rental property—other than with a calculator and a typewriter. He created a professional residential property management software in DOS and called it simply “The Property Manager.”

As I quickly discovered, this application was unlike anything else on the market. It’s property management software for single family homes—a relatively new field within property management at the time. (One that is a world apart from managing apartment communities or multi-family properties). Cockrell’s program did it all—it kept track of tenants and their leases, it noted all of the important HOA or condo information, and it had a complete maintenance module for generating estimates and work orders. It sent notices to tenants, and it handled lease extensions.

It even came with a complete accounting package for posting rents, paying bills, and reporting the owner’s income to the IRS.

This program did everything imaginable except cook lunch for the user. And when Windows superseded DOS in the early 1990s, Frank added on capabilities for collecting rent from tenants and making payments to homeowners electronically.
It was around that time that I began giving input to Frank, getting in touch with him and asking for changes. He was always responsive, and the next version of the software always moved us closer to having a system tailor-made for our unique Washington-area clientele.

The Property Manager has been a perpetual work in progress and an ongoing client-developer partnership. The biggest change came three years ago when Cockrell transformed the archaic code into a brand-new version with an SQL database. At the same time as many other businesses were moving their databases into the cloud, we were working alongside our developer to keep our business (and the information it runs on) local.

Frank Cockrell, even though he’s got a world-class app after all these years of listening to our needs, has chosen to keep his software exclusive to the Northern Virginia property management market.

For me, it’s been an eye-opening experience on the power small businesses have to co-create the applications they need—and to make processes work well at the most local level. Most business owners assume we must work with the tools and packages software companies hand us—even when doing so goes against our better judgment. WJD’s creative partnership with Frank Cockrell taught us that the best software is created through active involvement over time—and with local customers’ needs front and center.

David Norod is the principal broker of WJD Management. He enjoys keeping his 400+ property owners up to date on the best ways to keep their homes rented and running smoothly. When he’s not managing properties, he’s playing classic rock in local clubs with his band Off The Record.

 

INFOGRAPHIC: Rent-or-Buy Home Guide for Northern Virginia

The Rent-or-Buy Home Guide for Northern Virginia Property Managers

Looking for a quick rent-or-buy home guide for Northern Virginia property managers? Northern Virginia property management firms like WJD Management are in a unique position, in that we see both sides of the big (and very individual) “rent-or-buy” home question here in our local real estate market. And we know the best tenant is one who’s made the choice to rent a home over buying, because it fits with both their financial situation and their lifestyle preferences. The main lifestyle reasons for renting?  Flexibility, convenience, location, and sometimes access to shared community amenities that would not otherwise be affordable. We had this simple infographic prepared to try to answer the big “Should I rent or buy home” question.

rent or buy home

If you would like to learn more about WJD Management, please review our comprehensive Management Program guide. If you are ready to rent your home, feel free to take advantage of our exclusive FREE Rental Market Analysis. Finally, don’t forget to connect with us on social media! Follow us on FacebookTwitterLinkedInInstagram, and Pinterest for tips, ideas and updates.

INFOGRAPHIC: Why Millennials are Choosing Renting Over Buying

There are numerous reasons why Millennials are choosing renting over buying.

Curious about why millennials are choosing renting over buying? With home sale prices trending lower in Arlington and Fairfax Counties, now is a good time for metro-area homeowners to consider riding out the slump by renting, which is part of the reason why reasons why Millennials are choosing renting over buying. And here’s the good news for Northern Virginia landlords: The current population of young professionals under the age of 34 is, increasingly, choosing renting over buying. If you would like to learn more about WJD Management, please review our comprehensive Management Program guide. If you are ready to rent your home, feel free to take advantage of our exclusive FREE Rental Market Analysis. Finally, don’t forget to connect with us on social media! Follow us on FacebookTwitterLinkedInInstagram, and Pinterest for tips, ideas and updates.

Why Millennials are Choosing Renting Over Buying