Saturday, May 31, 2014

Creating a System For Screening Tenants

Sometimes it's hard to say no when you have someone who wants to rent your apartment. The bills still need to be paid but you have a vacancy. That means not only less money coming in, but sometimes increased expenses if your tenants normally pay the hydro or gas bills. Often landlords will jump at the first interested tenant who is ready to sign on the dotted line. I've done it, and I have also learned the hard way how much of a mistake this approach can be. That's why you need a simple and straightforward system to help you find your next tenant.

1) Pull a Credit Report.

I always require a completed application that gives me authorization to pull a credit report. I also get a small deposit to make sure that the applicant is serious. If I reject the applicant I return the deposit, but if they change their mind then it's non-refundable. Before I made this policy change I pulled a few credit bureaus only to be told afterwards that the applicant decided against the apartment. One woman even asked me for a copy of her bureau to show to another potential landlord (you are not allowed to provide a credit report to an applicant by the way)!

I always check references, and I consider a previous landlord's opinion more carefully than the current one if there is a difference of opinion. Keep in mind that a current landlord may see you as the solution to an existing tenant headache. Previous landlords on the other hand have nothing to lose by telling you the truth. I don't care if I have to call a landlord a thousand miles away. A few long distance phone calls are worth it compared to the financial and physical damage the wrong tenant can do to your rental property. Finally, in spite of how tempting it can be I always stick to the system. If an applicant doesn't meet my minimum credit requirements they don't get the apartment without a co-signer (or some other method to cut down on my risk). If I find out they lied about anything on the application they don't get the apartment - period.

Credit reports and tenant applications are beautiful things. There are a few companies where you can sign up and pull credit bureaus. If you check out you will find one of them. A lot of people don't realize just how much information is on their credit report. If someone thinks they can fill out an application and just leave out addresses with unpaid rents guess what? There's a good chance it's on their credit report. Even if the landlord didn't pursue the debt and there is no record of unpaid rent, if the applicant was there for any significant period of time chances are that the address is listed on their credit report as a previous address. If that address is not on the application I want to know why they didn't tell me about it.

It's not that hard anymore to check out a long distance address with free sites like If a previous landlord is listed as a reference at a particular address, you can do a search to see if there is anything fishy about the reference. If I find an address on the credit report that is not listed on the application I might do a reverse lookup by address to get a name and phone number. If I want to see what the building looks like or want to know what type of building it is I can check out Google Maps. Once I found that the street address didn't even exist for the city listed on the application. Doing reference checks is extremely important, so you want to make sure you are not just talking to somebody posing as a past landlord.

That said, once you look over the credit report and do your reference checks keep in mind that people do make mistakes. Often it is a judgement call on how much risk you are willing to take. If you have a less than desirable apartment you might have to be a little less picky. For me, I would rather have a great place in a great neighborhood so that I can attract - you guessed it - great tenants. If you create a desirable unit and take great care of your tenants and the building you will find it much easier to avoid a potential vacancy. You can spend less time second guessing that questionable application and simply move on to the next applicant.

Am I little bit paranoid? Maybe. I have heard all the stories from people who are terrified of becoming landlords. If I am a bit paranoid, in my opinion people who are afraid to get into the game are right off the charts. Rental property is an investment, but it's not really a passive one. Like any job you need to know what you are doing. You won't have all the answers on your first day and likely you won't have them all on your last. I've learned a few hard lessons along the way and no doubt will learn a few more, but I do know that if you are willing to pick yourself up and press on the rewards are worth it.

Friday, January 31, 2014

How My Father-In-Law Saved on Property Taxes

One of the inescapable expenses that come along with property ownership is property tax. Short of selling your investment, you can’t call the city and cancel your property bill or simply switch to a different service provider. What you can do is take a good look at your property taxes and the assessed value of your property.  The example I am about to share shows an approach you can take with a recently purchased property in Ontario whether it be an income property or your own home. This article does not guarantee that you will save on your property taxes, but it does provide a method or two where you may get a reduction in these expenses.  If you are outside of Ontario, call city hall and ask them how property taxes are assessed and how you would go about reviewing your assessment. This example may not give you a cookie cutter approach, but if it causes you to do more than automatically throw your property assessment into a file (or garbage can) unchallenged I will consider my job done.

My father-in-law recently purchased a home. It was listed by a real estate agent on the MLS system and it sat on the market for a while before we stumbled upon it. It was a good, basic war time house but a lot of potential buyers turned up their noses and left without making a single offer. Why? Frankly the house was butt ugly! The walls and ceilings were all painted a baby blue and there were holes here and there in the plaster. The interior doors were not traditional doors. Instead, someone had installed cheap plastic folding doors held closed by a magnet. Even the bathroom was missing that coveted feeling of security. The only thing between you and everyone else while sitting on the toilet was a flimsy piece of plastic and no lock! There was no shower, the electric water heater was on its last legs and the gas furnace was old. There was no air conditioning. The carpet was worn and dirty. Outside the house the only landscaping was a patchy lawn ripe with weeds that made its way right up to the foundation walls. The concrete steps were on a slight angle where you entered the house. In short, my father-in-law purchased an ugly, basic house with zero curb appeal.
Other than that, the house was a gem. If I was buying it as an investment property, I would say that for someone with a little vision it had all the right things wrong with it. The roof was recently done and in pristine condition. The foundation was solid and had been waterproofed within the last 3 years. Floors were level, existing plumbing was in good shape, and the electrical wiring had been updated to 100 amps complete with a breaker panel. All the windows had been replaced within the last 10 years. Anyway, it wasn’t an investment property, but house value is house value, and in the end the perceived value of a property is the standard that city taxes are based on.
In Ontario, Canada a company known as MPAC (Municipal Property Assessment Corporation) is responsible for periodic valuation of homes so that municipalities can determine individual property tax assessments. My father-in-law bought the house for approximately $10,000 below asking price which was about $15,000 below the property’s existing assessed value for tax purposes. Within a few months of the purchase, MPAC sent him a revised assessment saying that the value of his home had increased even more and outlined a higher assessment value that was to be phased in over the next few years. Generally these notices state that if you disagree with the assessed value you can go through an assessment process and file a “Request for Reconsideration” on the value of your home.
If you live in Ontario, Canada then you can and should read up on the suggested methods of submitting your request at the MPAC site here: In this particular case I didn’t worry too much about providing arguments such as comparison values for a reassessment. I simply filled out the form with the argument that the valuation placed on the house as of the date of the assessment greatly exceeded the market value of the house as proven by an arm’s length transaction of the property listed on MLS through a licensed realtor. In plain terms, the house should not be valued at more than what someone can get for it on the open, free market. You do need to fill out quite a bit of information about the house that would impact its value but the main piece of evidence was the paperwork proving the sale price of the home.
Again, I cannot claim to be an expert on property taxes or house evaluations, and I certainly am not guaranteeing that you would get the same results that I have. In our case MPAC reviewed the assessment and came back with a valuation slightly lower than the purchase price of the home. My father-in-law is saving some money on his property taxes and any future increases will take into consideration his reassessed value as a baseline value for any potential future year increases. Even if the story did not turn out the way it did, all he would have been out is the cost of a stamp.
“Never let the fear of striking out keep you from coming up to bat.” (Babe Ruth).