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Rental Applications and Tenant Screening

Aggressive tenant screening is an investment that pays for itself many times over, by preventing most tenant defaults, tenant damage, and tenant lawsuits. But how exactly should you screen these rental applications? How do you measure tenants’ relative worth?First, let’s spend a moment discussing the rental application itself, and what data you need to make sure you collect.

Make sure each applicant fills in their current landlord’s name and phone number on the rental application, as you’ll want to call them for a reference on what kind of tenant the applicant is. Granted, tenants can lie and fill in a friend’s name and number on the rental application, or sometimes their existing landlord will be so desperate to be rid of them that they will lie, but this isn’t often the case, and when it is, you can usually tell that something is wrong.

Be sure the applicant fills in their employment and income data on the rental application as well, including a supervisor’s name and phone number, so you can verify the information. When you call the supervisor to verify the applicant’s employment and income, also verify what kind of employee they are, and the chances of their continued employment.

Find out the rental applicants’ pet and child status: do they have children or pets? How many? What ages? What breeds? We’ll talk more in a moment about discrimination, but it’s worth noting here that you cannot, under any circumstances, deny a rental application because of their familial status, including anything to do with their children. Don’t ever list children as a reason why you denied someone’s rental application, it’s illegal.

Be sure to collect information about their assets, such as vehicles, bank accounts, or any other kind of property. This may seem unnecessary, but in a year from now when your tenants default on their rent and leave your rental property in a state of shambles, you’ll know how to collect the money from them after winning a judgment in court.

Finally, make sure your rental application includes a section for them to state whether they’ve ever been evicted, been sued, been convicted of a felony, and other such disclosures. If they go bad as a tenant, and you discover they’ve lied about one of these issues, you’ll have a signed statement of perjury you can show in rent court.

Other than verifying their rental history, employment, and income, you’ll also want to pull some background reports about the rental applicants from third parties. To be able to do this legally, you’ll need a release clause in the rental application, authorizing you to perform any background checks necessary to evaluate them as prospective tenants. First, check their credit history, and look for late payments, look for bankruptcies, and look for their amount of debt (any of these are very bad indicators). Second, check their criminal history, for obvious reasons. Third, check their eviction history, and, if available, their checking history to make sure they aren’t in the habit of writing bad checks. Say what you will about the entitlement to second chances, most people are either committed to paying their bills or they’re not; tenants who have been evicted once are astronomically more likely to default on their rental payments again.

Finally, a word on discrimination. The federal Fair Housing Act outlaws denying any rental application based on the applicants’ race, color, national heritage, religion, gender, disability, and familial status. If someone takes you to court over this issue, you’ll have to prove that you chose a different tenant over the suing applicant for a reason other than any of those seven reasons, which is yet another reason why you MUST collect detailed rental applications, perform detailed background checks, and keep records of all of them for at least six months. If a rejected rental applicant asks you why you rejected their rental application, tell them you’ll have to look up their application to check, and then mail them a letter specifying their credit, income, employment, or housing history.

As a last note on the matter, it is easy to unknowingly break this law, by stating in your advertisement for the property that you’d prefer a specific type of person (such as “looking for a young couple…”). Be extremely careful to avoid these mistakes, and because some states have different laws adding to the federal law, be sure to check your state’s laws as well. All of this trouble just to sign a rental agreement may sound like a lot of work, but when you find a good tenant, who will pay rent on time, keep your investment property clean, and not sue you, you’ll be glad you spent a little extra effort on tenant screening.
Author Resource:- Brian is a landlord who did his own tenant screening and property management for many years before reaching too many properties to continue managing them himself. He contributes regular real estate investing content to a variety of online resources for landlords.

How to Check Business Credit Rating

Much like your own personal credit rating, businesses are assigned credit ratings. These numbers, on a scale from 0 to 100, are a sign of how reputable the business is when it comes to dealing with creditors. An optimal credit rating for a business is 75 or higher. You can check a business credit rating for yourself, as long as you have the right information.
Find a reputable website where you can check a business credit rating.  At www.starpointtenantscreening.com , you can even search for a business and select the right one from a list.

Ask for the business identification number. A FIN or an EIN is helpful when you want to check a business credit rating. You can get the identification number from the owner of the business. However, some owners are reluctant to give this information out. It’s similar to a person’s social security number, and many businesses protect this information for their own security.

Check the personal credit of the business owner. Some businesses, especially small businesses, are funded based on the owner’s personal credit rating. If you find out the credit rating of the owner, it’s a safe assumption that the business has a similar credit rating.

Equal Access Rule: LGBT/Gender Identity

HUD on Jan. 24 proposed a rule that would prohibit discrimination in federal housing programs on the basis of sexual orientation or gender identity. The rule is available at http://bit.ly/hLMC0H. HUD says that lesbian, gay, bisexual and transgender (LGBT) individuals and families are being arbitrarily excluded from housing opportunities. HUD reports that 20 states, the District of Columbia and over 200 localities have similar laws.The proposal clarifies that the term “family” includes LGBT families and couples and also prohibits inquiries regarding sexual orientation or gender identity in all HUD-assisted housing or housing with financing insured by HUD.

While this proposal is limited to HUD-assisted housing, there was movement in the last Congress to expand the protected classes in the Fair Housing Act to include not only gender identity and sexual orientation, but source of income as well. At this time, it is unclear whether such efforts will emerge in the 112th Congress.

Reporting Non-payment of Rent to Credit Bureaus

As a property owner or manager, there is little more frustrating than a tenant who does not pay their rent. The situation is costly, time consuming and aggravating.

There are a few ways for a landlord or property manager to get a tenant’s poor payment behavior to show up on the tenant’s credit report and alert future would-be landlords.

One effective way is to turn the tenant’s debt over to a collection agency. Although chances are small you will recover the owed rent payment(s), the collection account will show up on the tenant’s credit report and have a significant negative effect on the tenant’s credit score. When selecting a collection agency, make  sure that they report to the credit repositories (Trans Union, Equifax and Experian).

The other option, which can be done with the first option, is to file an eviction with your county court house. The eviction will often then show up on the tenant’s credit report under Public Records as a judgment which has a very negative effect on the credit score.

It’s important to review the tenant laws for your state though before proceeding with an eviction. Look for your state laws on our helpful page.

http://www.starpointtenantscreening.com/landlord-and-tenant-laws-by-state.html

The other option, which can be frustrating and costly but effective, is to sue the tenant for non-payment, getting a judgment , which becomes public record and may eventually be picked up by credit bureaus. This will then show up on the tenant’s credit report under Public Records as a judgment or a lien which has a very negative effect on the credit score.

2011 Apartment Forecast by the Numbers: Is it Getting Better?

Economists predict a steady recovery for the apartment industry as a whole, but not all apartment owners will be swept up in the growth.

After facing a maelstrom of tight credit, job loss and weak housing demand in 2009, many in the apartment industry are understandably tentative as they enter 2011. Improved demographic demand coupled with virtually no new supply would seem to point to a profitable year to come for many apartment providers. But not every owner has such a rosy outlook. While trophy properties with strong performance continue to gain value as investors look for sure bets, apartment communities with weaker performance may still face challenges finding financing or attention from investors. And while demographic trends are pointing in a positive direction, disappointing job growth in 2011 could derail improvements in rent growth and occupancy.

Just how improved will the apartment market be in 2011? A number of established economists and research firms in the apartment industry offered their takes, painting a picture of slow but steady progress for the national economy, employment, apartment fundamentals and financing—as long as that progress isn’t wiped out by a double-dip recession.

Job Growth Likely

The U.S. economy overall should improve in 2011. Pent-up consumer and business demand will begin to release next year and drive a stabilized recovery, with GDP growth at around 3 percent, according to Marcus & Millichap Research Services’ economic outlook.

The consumer sector may still remain a drag on the economy, however, the firm says. Consumers continue to be strapped by tight credit, and the extended downturn has lead many households to pay down debt and increase savings rather than spending disposable income on goods and services.

Job production will likely remain limited and, importantly, inconsistent from month to month, according to Greg Willett, Vice President, Research and Analysis for apartment research firm MPF Research. While the onus of the recovery is on businesses, they first must regain confidence before they undertake more substantive hiring.

On the other hand, young adult hiring in 2010 has been the best since 1984, indicating substantial new household formation, notes Ron Witten, President of multifamily market advisory firm Witten Advisors.
So despite lackluster economic growth and continuing uncertainty in the labor markets, households appear to be returning in droves to the rental market and signing leases, says Victor Calanog, Director of Research for research firm Reis.

“This reflects some optimism about an improving job market,” he says. “It may take individuals anywhere from six to nine months to find a job, but that is far better than the situation in early to mid-2009, when the nation was shedding hundreds of thousands of jobs per month.

“In other words, pent-up demand from renters tired of living with their families or roommates may be driving these results. Another factor seems to be flat or declining trends in house prices and mortgage rates. There is an incentive to sign 12-month leases for an apartment rental, versus committing to a home and a 30-year mortgage, particularly if home prices and mortgage rates are expected to stay low,” Calanog says.

Apartments will gain a disproportionate share of new housing demand for other reasons, as well. “Between 2005 and 2009, the number of 18- to 34-year-olds living at home increased by 2.2 million, the highest level recorded in over 25 years,” according to Marcus & Millichap.

“Based on expectations that strict mortgage standards and elevated downpayment requirements will persist for several years to come, most young adults will head for the renter pool.”

Loan servicers should continue to step up the pace in dealing with non-performing mortgages, Willett notes. “That throws more owners who haven’t been paying their way out there looking for other alternatives,” he says. “Additional households who have been renting single-family homes that will go through the foreclosure process will be displaced, and lots of those households do end up back in apartments.”

However, Calanog notes, if the rate of job creation remains disappointing through 2011, it is likely that strong numbers from apartment rentals may moderate.

Despite persistent weakness in consumer and business confidence, the risk of a double-dip recession remains unlikely, predicts Marcus & Millichap, and employment growth should strengthen next year to near 2 percent.

Demographic Delight in Store

For apartment operators, the favorable demographic trends lead to an optimistic outlook for next year. With virtually no new completions on the market, demand growth should drive occupancy significantly.

Entering Q4, occupancy is up to 93.9 percent after hovering around 92 percent through most of 2009, according to Willett. Q3 effective rents are up 1.2 percent quarterly and year-over-year, with particularly strong performance from the Midwest and the Carolinas, Willett reports.

Reis found similar improvement, with national vacancy falling from 7.8 percent to 7.1 percent, one of the sharpest drops in vacancy on record, and asking and effective rents rising by 0.5 percent and 0.6 percent respectively, about the same pace relative to Q2.

The consensus view is that rents should bounce back strongly in 2011. Witten Advisors predicts rents up 4.5 percent in 2011 as operators become aggressive in raising rents with little fear of losing customers to other housing options.

As demand picks up, occupancy should rise above the 95 percent mark, up 1 to 1.5 percentage points, according to MPF.

Shifting Investment Strategies

For developers, owners and investors, the big question at this time last year was how lenders would manage their apartment portfolios. Would they continue to extend maturing loans, or would they demand repayment or sizable paydowns?

The answer, so far, seems to be a healthy mix of both. Servicers are extending more loans for deals that have life and can eventually repay, while foreclosing on others that have very little chance of repaying, either due to poor markets, physical conditions or bad sponsors.

That policy appears to be working, according to Mike Kelly of Caldera Asset Management. Tightening rent rolls and competitive debt markets will help many deals that were under water at the end of 2009 to be able to return some equity.

Investors have begun to accept that the wave of deeply discounted, distressed opportunities they were expecting has not panned out. That capital, however, is now turning its focus to stabilized assets, according to Marcus & Millichap. Competition for deals has increased and cap rates have started to contract for higher-quality properties.

On average, cap rates dropped 10 basis points this year to 7.3 percent, while per-unit prices rose 9 percent to $83,600, the firm found.

Along with that improvement in pricing, investors are tempering their real estate return expectations, according to the Emerging Trends in Real Estate 2011 report released in October by PwC US and the Urban Land Institute. Investors anticipate high-single-digit returns for core properties and mid-teen returns for higher-risk investments.

“Investors have begun and will continue to target those markets where the prospects for job creation are stronger,” says Mitch Roschelle, Partner, US Real Estate Advisory Practice Leader, PwC.

“This is why we see this flight-to-quality trend of late in the real estate industry, and this is a factor contributing to the lowering of cap rates in some recent transactions in certain large, coastal cities.”

Debt Markets Loosening

The report also predicts that debt markets will thaw further in 2011 as banks continue to strengthen balance sheets, take their losses and step up lending, resulting in higher transaction volumes.  Borrowers are expected to have improved chances to obtain refinancing if they own relatively well-leased, cash-flowing properties. But overleveraged owners dealing with high vacancies and rolling down rents may face more uncertain prospects in the credit markets, including the increasing likelihood of foreclosure.

“Real estate market participants continue to see a gulf between buyers and sellers; however, there is an expectation that the bid-ask spread will begin to close in 2011 as selling sentiment improves dramatically from last year’s all-time survey lows and buyers temper expectations for giant discounts,” says ULI Senior Resident Fellow for Real Estate Finance Stephen Blank. “Investors with cash could have excellent opportunities to seize market bottom plays by recapitalizing cash-starved owners or buying foreclosed assets.”

Caldera’s Kelly predicts the government agencies Fannie Mae and Freddie Mac will continue to lead the debt markets. Freddie Mac’s Capital Markets Execution product has become a staple in many new acquisitions, and Fannie Mae should come on strong as its Delegated Underwriting and Servicing (DUS) lenders become more aggressive.

Longer term, the White House faces a Jan. 31 deadline to present its plan for reforming Fannie Mae and Freddie Mac, and Congress has indicated that GSE reform will be their first major initiative for the new Congress next year.

At a recent industry event, U.S. Department of Housing and Urban Development (HUD) Secretary Shaun Donovan pledged that the Administration is “fully committed to not just making sure that multifamily is part of the debate, but that it is part of the solution.”

Will Cap Rates, Taxes Jump?

While recent trends offer a great deal to keep the apartment industry optimistic about the future, there are also a number of unanswered questions, Kelly says.

• If Freddie and Fannie consolidate or change styles, what happens to the apartment market? Will cap rates jump?

• Owners have seen cap rates improving, but many of these sales have been newer properties in prime markets. Can they expect the same for B and C properties, or is the apartment industry entering a world of “haves” and “have nots?”

• Effective rent growth looked strong in 2010, but residents who signed a lease with concessions are now coming up for renewal. Will they be willing to accept increases of 5 percent or more in their effective rent?

• What about expenses—particularly taxes? Could they go up faster than multifamily housing operators expect?

While industry experts and researchers can make forecasts about the year ahead, their predictions only go so far. Finding the answers to these questions and more will make 2011 a fascinating year to watch.

Jeffrey Lee is NAA’s Manager of Communications

No-Smoking Lease

Allowing tenants to smoke inside a property can increase maintenance costs by discoloring walls and leaving a lingering smell. Many landlords choose to make their properties nonsmoking and implement a nonsmoking lease to impose liability on tenants who choose to violate the terms. Adding a nonsmoking clause or addendum to a lease can protect property managers from damages caused by smoking.

Instructions

How to Write a No-Smoking Lease

1.

State the unit or property is nonsmoking directly below the title of the lease or next to the name of the unit. Place the words “Nonsmoking Unit” in parentheses below the words “Lease Agreement” at the beginning of the document or add the words “Nonsmoking Unit” after a comma following the name or address of the unit or property.

2.

Create a section of your lease entitled “Nonsmoking Policy.” This section fits well below the “Maintenance and Condition” section or “Pets” section.

3.

State the purpose of the nonsmoking policy. In most cases, this will consist of negative health effects, comfort of adjacent property owners, additional maintenance of the property and increased risk of fire.

4.

Define smoking. Failure to describe the types of smoking prohibited could lead to legal loopholes. For example, if you mention cigarette smoke and your tenant smokes cigars, they might have grounds to argue against any claims filed by you for damages. State that carrying lighted cigars, cigarettes or other lighted products through the property also is prohibited.

5.

Outline the terms of the nonsmoking agreement. State the tenant and landlord agree the property is designated as nonsmoking and the tenant agrees not to smoke in the property, on the grounds or in public areas connected to the property. Include a statement the tenant will prohibit guests and visitors from smoking on the property and in the unit as well.

6.

Add a disclaimer. If your rental property is multiunit, your tenants still might be subject to secondhand smoke by other tenants in violation of the no-smoking policy. State you are not guaranteeing a totally smoke-free environment or making any claims the air quality in the unit is safer than that of any other rental property.

7.

Describe the consequences for violating the nonsmoking policy. The tenant might forfeit all or a portion of his security deposit or be subject to eviction for violating the policy. Be specific about what steps will be taken if the tenant is found to have violated this policy.

Tips & Warnings

  • A nonsmoking policy also might be attached to a lease in the form of an addendum. To accomplish this, create another document entitled “Addendum to Lease” that includes the name of the property and names and addresses of the tenant and landlord. The information to be included is the same as that outlined above. Signatures of both parties should be required on all separate documents attached to a residential lease.

Starpoint Partners With Property Management Software

StarPoint Tenant Screening, an information services company that delivers tenant credit reports and tenant background screening reports to property managers and landlords nationwide is now a technology partner with Rentec Direct, an online property management software solution provider.

Rentec Direct, based in Grants Pass Oregon, provides a robust online property management software application that includes all the tools necessary for both professional property management firms and individual landlords to manage and track unlimited properties and tenants. Rentec Direct provides full banking, property, tenant and owner accounting management, online rent payment, online vacancy marketing and tenant background screening. The partnership with StarPoint Tenant Screening now empowers Rentec Direct to add tenant credit reporting to its background screening offering for its subscribers.

“The Rentec Direct partnership is a great fit for StarPoint Tenant Screening’s business model. Integrating with a partner who adds additional value and services to our target market is ideal,” said Kelly Gontarski, president of StarPoint Tenant Screening. “We get to exclusively showcase our tenant credit reporting product in a top notch online store where our prospects regularly visit. We are thrilled to be included.”

StarPoint Tenant Screening already offers its full menu of online instant tenant screening services including credit and background reports to property managers and individual landlords nationwide. Integrating with a property management software solution of Rentec’s size and integrity allows Starpoint to reach thousands of additional quality prospects daily while adding value to Rentec’s subscriber offering.

“We are thrilled to empower our existing base of property managers and landlords with this new data from StarPoint.  It will no question make their daily lives easier and more productive.” says Nathan Miller, President of Rentec Direct.  “StarPoint Screening has proven to be an exemplary partner and together we will be providing an excellent opportunity to landlords to improve their screening process.”

For more information, contact Kelly Gontarski, at 877.330.2444 ext.150 or via e-mail at kgontarski@starpointscreening.com

About StarPoint Tenant Screening

Founded in 2009, StarPoint Tenant Screening and its sister company, StarPoint Employment Screening, are wholly owned subsidiaries of The L.I.G Group, LLC. The companies provide tenant and employment credit reports and background screening services nationwide through their online proprietary software platform. For more information, contact Kelly Gontarski at 877.330.2444 x150, or via e-mail kgontarski@starpointscreening.com or visit www.starpointtenantscreening.com or www.starpointemploymentscreening.com.

About Rentec Direct
Rentec Direct provides property management software, tenant ach payment solutions, and tenant screening tools to landlords and small to mid-size property management companies thereby empowering property managers to run their business effectively and efficiently without the costs or overhead of the typical massive software platform and training regimen.  Rentec Direct is available via any connected device including PC, Mac, iPhone, iPad, and Android devices.  For more information, contact Nathan Miller at 541-690-8447, or via email at nmiller@rentecdirect.com, or visit www.rentecdirect.com

2011 Quick Rental Industry Overview

• Nearly eighty-nine million Americans, almost one third of all Americans rent their housing.

• There are 17.3 million apartments in the U.S. (in properties with 5+ units). They house 16.5 million households, or more than 14 percent of all households.

• The value of the entire apartment stock (buildings with 5 or more units) is $2.2 trillion.

• Rental revenues from apartments total almost $120 billion annually, and management and operation of apartments are responsible for approximately 550,000 jobs.

• Construction of apartment communities in the last five years has added an average of 210,000 new apartment homes per year. The value of the new construction has averaged over these five years more than $32 billion annually, providing jobs to over 270,000 workers.

• Apartment living now attracts a wide variety of Americans, including households that could afford to buy, but prefer the convenience of renting. In fact, households making $50,000 or more a year make up a quarter of all apartment renters.

• The U.S. is on the cusp of fundamental change in our housing dynamics as changing demographics and housing preferences drive more people away from the typical suburban house. According to Professor Arthur C. Nelson, Presidential Professor and Director of Metropolitan Research at the University of Utah’s College of Architecture and Planning, to meet emerging housing demands, between now and 2020, half of all new homes built will have to be rental units.

For more quick facts, visit www.nmhc.org/goto/quickfacts .

EPA Delays Lead Certification Requirement

The Environmental Protection Agency (EPA) announced that it will provide additional time for contractors to become trained and certified under the new Lead Renovation, Repair and Painting (RRP) Rule. They have moved the deadline back to October 1st and will make exceptions regarding enforcement for workers who have applied to enroll or are enrolled in courses as of September 30th. Although it has delayed the certification deadline, the EPA will continue to enforce the work practice requirements set forth in the rule.

This announcement is a result of trade groups and elected officials voicing concern that contractors did not have proper access to the necessary certification courses. Contractors working on the pre-1978 target housing were originally required to be certified by April 22nd of this year.

For more information please visit the NARPM® webpage dedicated to the new lead based paint rules. There you will find helpful links to websites and important documents. Local and state governments have also started working on additional laws regarding lead-based paint. Please be sure you are monitoring updates to ensure compliance with all necessary laws regarding lead-based paint and residential property management.

How Do You Read a Credit Report?

During my 10 plus years in the credit reporting industry, the two most frequently asked questions you hear are 1) What Do Credit Scores Mean?  and 2) How do you Read a Credit Report?

We’ve answered the first question, “What Do Credit Scores Mean” in a previous blog.  But here, we’ll give you an easy guide to reading your tenant’s credit report.

Simply click on our illustrated How to Read a Trans Union Credit Report Guide which will walk you through a credit report provided by StarPoint Tenant Screening.

Questions or comments? E-mail me at kgontarski@starpointscreening.com

Contact Us
StarPoint Tenant Screening
520 East Zaragoza
Pensacola, FL 32502

Ph: 850-262-0002
Toll Free: 877-330-2444
Fax: 877-349-2175

info@starpointscreening.com