The Four Things You Must Know About Prospective Tenants
If you are investing in houses in Kona Hawaii, you have a lot on the line. Houses in Kona Hawaii certainly aren’t cheap. Thus, if you don’t play your cards right, adding value in a profitable manner and working out your figures beforehand to determine your projected REI, you could face severe losses. To play your cards right and make the money you deserve, you have to be thorough and calculative.
Whether or not your investment is profitable can have a lot to do with the tenants you select. A tenant who won’t make payments on time, or at all, will undoubtedly lose you money. So will tenants that inflict property damage, or behave so poorly that they drive other tenants out of multi-family operations. Renting out houses in Kona Hawaii? Here are the four things you must know about prospective tenants to prevent headache and financial losses.
The State of Their Finances…
It goes without saying that you should expect prospective tenants to shop within their respective price ranges…right?
Well, you would be surprised how often people overreach seeking houses in Kona Hawaii and come up short when it’s time to make monthly payments. This is especially true of younger tenants, who may not have enough real-world experience to budget for housing properly. These naïve tenants might assume they can scrape by spending 60-70% of their monthly income on rent. And these are the same tenants that frequently make late payments and face eviction notices.
You need to do your research and ask the right questions to ensure that your tenants’ poor financial decisions don’t become your own. Always ask tenants to verify their income without exception. If your asking rental rate is less than or equal to 1/3 of their monthly income, you have found a financially sound tenant, one capable of covering rent even in the event of emergencies and unexpected expenses. If not, continue your search.
Most prospective tenants will provide an honest account of their monthly earnings. However, there are those who will attempt to forge proof of income that exceeds what they actually earn. Don’t just ask for the numbers; ask for references. Follow up with their employers to confirm that they indeed hold a steady job. And, of course, that they make as much as they say they do.
…And, Maybe, Credit
If you are renting out houses in Kona Hawaii, you may want to check your tenants’ credit scores as well. A very low credit score may indicate suffocating debt and unreliability. However, you should also know that credit scores are becoming a less reliable gauge of financial security. That’s because so many members of the millennial generation are crippled with school-related debts. Studies report that the average millennial possesses over $37,000 in debt!
Furthermore, credit is not as essential to millennials as it was to previous generations. Disillusioned by the financial crisis of 2008, millennials don’t like to spend money they don’t have. They are thus more averse to credit cards than previous generations, reflecting the generation’s financial conservatism. And because millennials haven’t been using credit cards since they were 18, they haven’t built as much credit as a baby boomer might have at their age.
Credit scores that are extremely low may be cause for alarm, and good reason to reconsider accepting a tenant. But the credit score should not be the end-all be-all. If your prospective tenants’ credit score is low but their monthly earnings suggest sufficient financial health, don’t be afraid to ask them why. If they have a laundry list of monthly expenses, their ample income may not be sufficient. However, if their credit is low because they were very inconsistent with their payments during a financially constrained period of the past, you might want to let the credit score slide.
Criminal Background
Always require that tenants provide the necessary information to complete a criminal background check. Most of us assume that we can determine if someone possesses bad intentions based on their appearance or their “vibe.” But you cannot rely on your intuition alone in determining whether a prospective tenant could be a liability.
Like a credit score, a poor legal record doesn’t necessarily have to be a deal breaker. Context is important. You don’t want to turn away a pleasant individual with high income and excellent references who committed a very minor offense years ago.
However, you do need to be fully aware of serious offenses, especially if you’ve invested in a multi-family complex and have other tenants that will be living in close proximity to the prospective tenant. If the applicant has been convicted for domestic abuse, sexual assault, or any other act of violence, let them know immediately that you won’t be considering them. A minor theft charge in high school is one thing. However, if your prospective tenant has been found guilty of grand theft or embezzling, it is safe to assume the tenant cannot be trusted.
Eviction History
Always look to see if your prospective tenant has a history of eviction before you accept him or her. Like a low credit score or criminal record, a history of eviction should not be a solitary indicator of a person’s credibility. Just as you would consider the scale and circumstances relating to a credit score or criminal offense, you should ask both your tenant and the landlord who evicted them exactly what happened. It is not uncommon that a crabby landlord unjustly evicts a tenant. If this is the case, but your tenant otherwise has an excellent profile, there is no reason to write them off.