Ohio State Football Recruiting Similar to Great Tenant Selection?

 

“He has shown you, O mortal, what is good. And what does the LORD require of you? To act justly and to love mercy and to walk humbly with your God.”

(Micah 6:8)

 

“No Shoes, No Shirt, No Dice.”

Spicoli in Fast Times at Ridgemont High

 

Ohio State college football has been a dominant program for a long time.  In the last 10 years, they have a record of 106 wins and 13 losses while winning 2 National Championships.  This makes them one of the top programs in the country as they have set a standard of excellence few teams can match.

 

To have a perennially highly-successful football team, Ohio State has been able to get great players to come to their school; great players make great programs!  But how does Ohio State determine what high school football players will actually become great college football players?  What do players need to demonstrate?

 

Like every college football program, coaches will look at all the on-field performance measurables: how many yards, touchdowns, tackles, etc. each player had in high school.  And then the physical measurables:  how fast, big, agile, and strong each player is.  And then there is mental aspect where players will take tests and answer questions showing off their “football IQ”.

 

These are all very important metrics and are heavily considered; the top recruits all grade very well on most or all of the criteria.  But what gives players who measure out well in the criteria above the edge over one another?  I remember reading something about that from former head coach Urban Meyer.  He said that one of the most important things he looked at in recruiting was how the high school player played in the biggest games and versus nationally-ranked players in one-on-one match-ups; he was looking for what he considered true greatness.  Did their performance ramp up to meet the challenge or was it pedestrian?  Did most of the players noteworthy performances come against average teams or did their biggest, statistic-rich games come against the best players in the most high-profile games?  Did they look forward to and excel in the most competitive situations and will their team to win?  Coach Meyer believed that getting the types of players who had the ability to rachet their games up a notch was paramount to Ohio State winning national championships.

 

In property management, tenants are the big-time recruits!  Landlords are looking for tenants who pay on time, maintain the rental homes well, and stay out of trouble.  If landlords can secure great tenants, property management can be really easy!  This is why great landlords spend considerable resources on tenant screening.  We look at all the measurables of the “Big 4”:

 

1. Employment & Income
2. Past Landlord Reports
3. Credit Check
4. Criminal Background Check

 

Measurables tell most of the story and tenants who grade out highly in these areas can provide a solid program.  But what about in situations when there are many tenants applying for one house?  Who is the best one when all the measurables look good?  Who is going to take care of the house?  If some bad event happens, who is going to remain steady and still pay rent?  Bottom line, how can great tenants be found?

 

These are tough questions.  The right tenant roster can make or break a landlord.  What to do?

 

I tend to pay extra attention to 2 things:

1. Debt level (and the corresponding available credit): How extended is the tenant?  Hard times: If there is a sudden job loss or car issue, can they absorb it?
2. Past landlord reports: What did they think?  Did they like the tenant or was the tenant difficult to deal with?  How did the house look when they moved out?  Would they rent to them again?

 

At the end of the day, Ohio State football and smart landlords are looking for great players.  Great recruits win championships and profitably pay off rental houses.  Pick wisely!

 

Happy Landlording!

Do You Want to Rent Your Charlotte Rental Home to Anthony?

Who needs a house out in Hackensack
Is that all you get with your money
It seems such a waste of time

If that's what it's all about
Mama if that's movin' up
Then I'm movin' out
I'm movin' out

“Movin’ Out (Anthony’s Song)” by Billy Joel

People move out and relocate for many reasons- a new job, real love (isn’t that sweet!), real love that really isn’t (not so sweet), the need for new scenery, the need to get out of town (Jack Bauer fleeing the US for the UK in Season 9 of 24), Anthony getting out of Mama’s house, etc…

And most of them, like Anthony, need to find a place to live.  So property managers get rental applications from out-of-town folk and need to screen them.  It seems like it would just be business as usual.  But there are more factors to consider.

We’ll start with the basics:

1.  Credit check: Anthony saves his pennies, so I’m optimistic.

2.  Criminal check: He seems frustrated, so we’ll have to see on this on.

The income check seems straightforward; people make what they make.  But figuring out how much free cash flow is available can be muddled if the prospective tenants have financial baggage where they are coming from.  For example, are they homeowners?  That’s another house payment they are responsible for, and one that could rival where available funds would go if things got tight (pay for the house they own or pay rent for the one they don’t?).  If they make enough to afford two house payments, that’s great.  But most people don’t and it adds a layer of risk.  Renting out or selling their out-of-town homes is an uncertain thing and can provide short and long term cash requirements.  However, Anthony lives with Mama, so he’s good there with no extra house payment.

The employment screening also adds a potential issue.  Unless the prospective tenant is in largely the same work position with the same boss at the same company, there is uncertainty on how things will pan out.  When a prospective tenant has been in a job for a year or two, it shows they can get along, handle the job, and fit into the corporate culture.  New jobs in new cities are a step into the unknown.  And that creates a greater amount of risk.  Is Anthony transferring to Charlotte with a position with the same grocer or does he hope to latch on with the local Harris Teeter?  This adds some uncertainty to his application.

A quick caveat: “Risky” doesn’t necessarily mean bad.  When I think of our best all-time tenants (sigh… love you guys!), many of them were relocators with the “issues” described above.  

So what to do about Anthony?  His credit score will be a big indicator.  If he is in the 700-800 range, this tells me he knows how to handle his finances well and can make things work through potential adversity.  If it’s in the 500’s, I’m more nervous.

And cash is king.  How much in liquid assets does Anthony have?  He can send bank/brokerage statements that can prove he has funds to fall back on or tide him over until he’s up and running in Charlotte.

Anthony may want to get out of the Tri-State area, shun Hackensack, and come to Charlotte, but smart landlords will want to check Anthony’s application closely.  He may still need to stay in Mama’s house for a little longer to save more money, line up a job in Charlotte, and pay his bills on time to improve his credit score.

Brett Furniss is the head property manager of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management.   BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, Uptown condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

Wealthy Living Paycheck-To-Paycheck? More Pressure on Tenant Screening

When you hear the term "paycheck to paycheck" you probably think of low-income households struggling to make ends meet. That's even the title of a new HBO documentary highlighting the plight of America's working poor. But a new paper released at the Brookings Institution's BPEA conference Friday finds that a sizeable number of wealthy households are living paycheck to paycheck, too.

"The Wealthy Hand-to-Mouth," by economists at Princeton and New York University, finds that roughly one-third of American households -- 38 million of them -- are living a paycheck-to-paycheck existence. These are families who hold little to no liquid wealth from cash, savings or checking accounts. But a staggering two-thirds of these households are not actually poor; while they resemble poor families in their lack of liquid wealth, they own substantial holdings ($50,000, on average) in illiquid assets. Because this money is locked up in things like their houses, cars and retirement accounts, they can't easily dip into it when times get tough.

Christopher Ingram (Washington Post 3/21/14)

When running tenant rental applications, property managers and landlords are largely looking for one thing: tenants who will pay on-time and in-full every month (while not committing felonies in between “House Damage” parties).  We are looking at credit scores, criminal background checks, income, and landlord history.  But is this sufficient?

Based on the article above, prospective tenants that we once thought looked great on paper may be riskier than we thought.  For example, a house renting for $2K/month may draw the following applicant:

Married couple

Husband makes $96K/year

Wife stays home with 2 children

No criminal record besides 2 speeding tickets in the last 5 years

760 & 720 credit scores

Owned a home in their old town which they sold to move here for a job

They look like great candidates!  But let’s dig deeper with a back-of-the-napkin calculation when we delve into their credit report and specifically, their monthly cash inflows and outflows:

$8,000.00 Salary

less taxes (approx 40%):         ($3,200)

2 car payments:                       ($1,000)

Rent:                                       ($2,000)

Utilities                                   ($300)

Student loans                          ($200)

Private school (children)         ($600)

Credit card balances               ($100.00 minimum payment)

Car insurance                          ($250)

Food??
Activities??

Gas??

With $7,650.00+ in estimated monthly expenses, making $8K/month turns out to be tight.  If something happens unexpectedly (sickness?) or job loss (just moved here for a job), this could get bad in a hurry.  We know cash flow will be insufficient to cover the rent, so the question becomes how many assets do they have?  And how liquid are those assets?

And then the line of questioning turns into “Do we know?  Did we even ask?”

At the end of the day, the rental application can’t really devolve into a mortgage application-like colonoscopy.  It’s too painful for everyone involved and takes too much time. 

The good news is that a run-of-the-mill credit report is pretty thorough.  The credit report screening starts with looking where cash flow is going monthly and then factoring in the other common monthly expenses (car insurance, gas, utilities, cell phones, etc.).  If large credit card balances are present, it’s probably indicative that their expenses are more than their incomes.  Using a back-of-the-napkin look at their income and monthly expenses (coupled with alarm bells for any large credit card balances) will give a good idea of how risky the applicants are.  If there is sufficient cash flow left over each month, approve them and move on.  If it looks to be too close for comfort, ask more questions.  Ask for more documentation of assets.  And then reject the application or ask for a bigger security deposit.

Applications are about present qualifications, but also about future vulnerabilities.  Few things always go perfectly for everyone; this is real life we are talking about!  And if things don’t add up, it would behoove you to get to the bottom of it as opposed to just taking the path of least resistance.  High income and credit scores may not be grounds for fast track application approval anymore.  Times change and we need to change with them.

Happy tenant screening! 

Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management.   BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!