How to Handle a Bad Tenant?

What defines a bad tenant?  Here are some characteristics.

• Does not pay
• Always pays late
• Damages to the property
• Requests unnecessary maintenance weekly
• Breaks things and then wants the owner to pay to fix
• Receives multiple HOA violations & fines

It is important that your property management company handle the above issues correctly in order to protect your best interest as an Arizona Property owner.

The main thing is to take swift and stern action in response to any of the above issues.  You have to have clear and set definitions in the lease to handle these issues.  Also, stick to the setup you have put in place because tenants have a myriad of excuses that are rarely true.

While we could write many pages about how we handle the above here is one example.  A tenant calls in and says their tenant isn't working so maintenance does a screening on the phone to determine the cause.  After many questions, it is disclosed that the tenant broke the float and fill valve and then left it like that for several days causing a flood through out several areas of the property.  We move quickly and serve the tenant with a notice to cure and call a few days later to discuss the details of the repairs needed and arrange a time line for completion with the tenant.  We then follow up with the tenant at each interval of completion, go out to inspection with pictures to determine the work was done in a workmanship like manner.  In the end of the tenant completed the entire repair which consisted of rebuilding of the toilet tank, water dry out, replacing of flooring and baseboard.  Updates and pictures were sent to the owner along with way to keep them in the loop.

We have a process for all of the above items and these techniques have proven to reduce the frequency of each issue on the list.  If you would like more details on how we can help you reduce the pain of a bad tenant, give us a call.

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3 Key Steps to Determine a Good Rental Investment

If you are considering becoming a landlord and have researched the neighborhood including crime statistics then it's time to run the three most important numbers to see if the property is a good rental.  

1. Net Rental Income = Gross Income - (Operating Costs + Debt Payments)
In this case your operating costs include such things as taxes, insurance, utilities while vacant, property management fees, monthly mortgage payments as well as annual or variable costs like repairs, vacant periods and possible utility deposits. Many investors utilize 1.5 times the monthly rent amount for repairs during tenancy and 2 times the monthly mortgage payments for your vacancy costs.  If your result seems to be less than you consider "worth your time", it's time to start looking at a different property.

2. Calculate Cash-on-Cash Return: to do this multiply the net rental income by 12 to determine your annual cash-flow.  Next divide your annual cash flow by the total amount you're going to have to invest to get the property rented out not including the cost of the mortgage but the out-of-pocket expenses.  For example, if you will be purchasing the property for $100,000 with a mortgage for $75,000 you divide the annual cash flow by $25,000.  The closer your result is to .4 the better and really .3 and up is a good sign to move forward.  With a number less than .2 you probably want to move on because it will simply take too long to recoup your expenses.

3. Determine your Net Rental Yield = Net Rental Income *12/Property Value.  For example, if you have the $100,000 property from the example above and the rental income is $900/month than the Net Rental Yield is 10.8%.  In other words, your investment property will produce 10.8% of it's own value each year paying itself off in under 11 years.  Once you reach 100% your investment is paid off and you have an investment that is producing "pure capital".  Keep in mind that property values change and as such the Net Rental Yield will change.  The higher the Net Rental Yield of the property, the better the opportunity for net positive cash flow.  Many investors think that 8% is a good bench mark however you can calculate these numbers for several properties in your area to get a good idea of the range.

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Inspections - Protecting your investment

Now that some time has gone by since you placed your tenants you have a numbers of worries and responsibilities including the extensive drywall damage to the ceiling from the AC leak that the tenant failed to report in a timely manner. As a Phoenix Property Manager we know, that you worry about your investment. Is the tenant taking good care of your home? Are other things leaking and causing damages that have gone unnoticed. One of the best ways to set your mind at ease is with periodic inspections. Conducting periodic inspection during the lease term provides an added incentive to tenants to keep your property in good shape. These inspections can help avoid costly HOA violations as you can advise your tenant to make any needed corrections hopefully before any costly violations or fines are issued. By conducting these inspections you may be able to address problems and/or tenant concerns regarding defects that may have been overlooked. Periodic inspections can also help with tenant management since with these inspections it will be more difficult for your tenant to sneak in for example an unauthorized pet or unauthorized occupant. Be sure to protect your investment be sure to complete periodic inspections throughout the lease term. Follow @rpmwvphoenix

The High 5 of Tenant Screening

In our experience in renting properties in the Phoenix market, we have found that sticking to the basics is paramount.  Let's high five it for you.

1. Communicate the properties features or drawbacks to eliminate the tire kickers and lookie loos.
2. Rental history - Look for verification from a property management company versus an individual owner who may really be related to the applicant or may need the applicant to vacate so therefore does not disclose all the important details.  Also, look for no previous evictions and no late payments beyond a few days.
3. Income - prospects need to have verifiable income that equals 2.5 to 3 times the monthly rent and it must be from a stable, consistent and reliable source.  For example, hand written pay stubs are not a good idea to accept for income verification.
4. Credit - If prospects don't have a third part management company then they must have current credit they are paying on such as car payments and credit cards.
5. Background - no felonies or criminal records on background.

If a prospective tenant has issues with you asking questions up front regarding any of the High 5 areas than you probably want to move onto the next!

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