Room for Rent?

Avoid this when renting out a room

In previous posts I mentioned that I spend a fair amount of time taking calls from new landlords. They want to know about the TenantMagic program and to discuss others issues they are facing. Renting rooms in private homes has been a trending topic.

Trends in room rentals

It appears that renting out rooms in private homes is becoming more popular. The calls I receive are typically from empty nesters or single women that are looking to supplement their income. Many come from California.  The rents are so high there that it is difficult for young professionals (that aren’t in the tech industry in Silicon Valley) to afford even a modest rental.

According to Rent Café https://www.rentcafe.com the average rent in San Francisco is $3609 for a 792 sq. ft. apartment. In the Los Angeles area, rents average $2371 for 786 sq. ft. A 3 -1 income-to-rent ratio is the industry standard. This would require a monthly income of $10,827 in San Francisco and $7113 in Los Angeles.

It is easy to see why there is so much demand for rooms with rents so high. One owner in the Los Angeles area told me that she had 12 people waiting in line at her house the day after she posted the room availability.

Taking precautions when renting a room

This can be a win-win situation for both the property owner and the tenant.  There are however, a number of precautions that need to be taken by the property owner. After all, they are having a complete stranger living under the same roof as them.

The first thing the property owner needs to avoid is what the owner who had 12 people waiting in line at her house experienced. As an owner, you really do not want to have a crowd of complete strangers descending upon your property.

The solution is to require each applicant to complete an online application and background screening before meeting with them. The TenantMagic application displays the residency requirements at the beginning of the application. These requirements are Fair Housing-compliant and refer to income, criminal, credit and eviction history.

There is very specific wording that tells the applicant not to apply if they do not meet the requirements. The $35 application fee is charged at the end of the process. The applicant is further told that the fee is non-refundable if they apply and do not meet the stated requirements.

Benefits of screening applicants before meeting them

The screening process culls the unqualified applicants that are “just looking.” It also provides the property owner with a good understanding of the person that they will be meeting with. The TenantMagic criminal report is quite detailed. The eviction report lets the owner know if the applicant has a history of not paying the rent. The credit report identifies lines of credit, balances due and if there history of late payments and collections. All of these factors need to be carefully reviewed before accepting them as a tenant.

No single process is guaranteed to get owners the perfect tenant, but having them go through a thorough application and screening process is critical. This is especially important when they live under the same roof.

Jay Apple is co-founder of TenantMagic, LLC  TenantMagic provides online rental applications and comprehensive screening reports at no cost to landlords and agents. The applicant pays the fee.

You need more than a credit report to screen rental applicants

But they had a good credit score

Don’t focus on credit reports alone

Too many landlords are fixated on credit scores and credit reports when considering rental applicants. Landlords often call TenantMagic and will ask me what  is the minimum credit score they should use to accept and applicant? That is not the right question. Credit reports only provide a small portion of the information needed to make a qualified decision when considering tenants for your rental property.

Credit reports lack important information

An applicant’s credit history alone is not adequate to properly evaluate an applicant.

Eviction, criminal history and verified income are very important when considering a potential applicant and none of these are found in a credit report.

Eviction history is critical. Typically, if an applicant was evicted in the past, they will be evicted again. That is a landlord’s nightmare. The eviction process takes a long time and is costly. Property owners incur legal fees in addition to lost rent.

Criminal history is also crucial.  I presented at a real estate investors group about tenant screening best practices.  An elderly landlord told me a very scary story. The tenants in one of his properties stopped paying rent and would not respond to his phone calls. He went to the house to ask about the rent, was beaten severely by one of the occupants and ended up in the hospital for 2 weeks.

The tenant had a history of violent criminal activity. The landlord could have avoided the pain and suffering from the beating with comprehensive background screening.

Income Verification

You can find income information that was provided to the credit bureau when a credit card or loan was opened.  Many times this is not up-to-date or complete information. At TenantMagic, we recommend that the agent or owner ask for 3 consecutive pay stubs. You should request the 3 most recent bank statements to verify  the income deposits if the applicant is self-employed.

This method is far easier and quicker than attempting to get salary or wage information from the employer. Many large employers will direct you to a third party that requires a fee to verify employment and income.

 

Need more convincing about the need for comprehensive credit screening? Here is a forum from Curbed Chicago with more stories that will help convince you about the importance of tenant screening. This is just one of many sites with terrible tenant stories.

No tenant screening process will be 100% effective. But a comprehensive background search can significantly reduce the number of problem tenants.

Jay Apple is co-founder of TenantMagic, LLC TenantMagic provides online rental applications and comprehensive screening reports at no cost to landlords and agents. The applicant pays the fee.

Our secret to good customer service? We answer the phone!

One Sunday morning I got a call from a landlord that was interested in finding out more about TenantMagic. Toward the end of our conversation she asked “Why should I use TenantMagic? There are so many companies like yours out there. ”  I simply replied “We answer the phone on Sunday morning.”  That landlord is now a regular user of TenantMagic.

Know your customer

There are between 8 and 10 million landlords with fewer than 10 properties. From our observations,  the vast majority use paper applications and maybe some type of manual background screening. They tell me that the background screening can be anything from an online search by the landlord to having the applicant simply supply a copy of their credit report. Neither of these are very effective at identifying problem tenants.

We found that most of these landlords are not using any type of program to facilitate their application and screening process. When they call in, they indicate either

  • They didn’t know such a service existed until someone mentioned it to them.
  • There are so many different programs, they can’t determine which one to use.
  • They are don’t fully understand what features are needed or how the programs actually work.

In each case they appreciated having someone to speak to that could explain to them about selecting and using an online rental application and screening program.

Most of the callers were in 40’s 50’s or 60’s and valued having someone to talk to.

Matching customer service tools with your users’ preferences

There are many web sites that do not have a phone number listed for customer assistance. Trulia for example, doesn’t have a phone number or an email address for their users. They rely on a search page where you enter a question and a FAQ page. Other sites offer a chat bot that that offer a slightly better interactive experience.

Relying strictly on a searchable knowledge base or chat bots could be perfectly suitable if you know that your users are all under the age of 35. But, you could be frustrating and ultimately alienating customers that do not fall into that demographic.

Offering a range of customer service tools

The optimal customer service solution when you have users that vary in their technology sophistication and age is to provide a range of methods. With TenantMagic, users can submit a trouble ticket, email customer support, and call customer support. They can also go to our FAQ page.

We are available to landlords and applicants 8am to 8pm Monday through Friday and from 9am to 5pm on the weekends. We return missed calls within an hour during business hours.  Calls are returned the first thing the next day if received after hours.

We have found that providing customer service channels that meet a wide range of user requirements keeps our users highly satisfied when they have questions or need assistance. This can be evidenced by the large number of highly favorable reviews we have received. See for yourself – http://bit.ly/2IDdFeh

At TenantMagic we know that understanding your customer’s level of comfort with different types of technology especially for customer service goes a long way with customer satisfaction and retention.

TenantMagic provides comprehensive application and tenant screening at no cost to real estate agents, property managers and landlords. Applicants pay the fee.

Jay Apple is co-founder of TenantMagic, LLC