Why I hate Property Managers: Reason #284

Anesia, at The Landlord Blog, has another post about how her neighbors are getting screwed because they chose to use a Property Management Company(PMC) instead of taking care of the property themselves. From her post:

They gave the rental listing to one of the largest property management firms in Phoenix after seeing a sign in another yard on our street. They instantly knew the management company was terrible but didn’t want to deal with negotiating their money back or taking a loss and changing companies. They had no input into the tenant screening, aren’t aware if any was done, and didn’t realize the tenants moved in with two dogs. They’ve already been cited by the HOA because of the overgrown landscaping.

I've written several times about how poor management companies are. DO NOT USE THEM! Using a PMC is like trusting a used car salesman to pick out a car for you and set up the financing. There's an outside chance that he might be really, really honest and give you a fair deal, but you almost certainly going to be screwed.

If you deperately want to avoid dealing with your tenants, hire a personal Property Manager.

Property Managers - a new look

In the past I think I've made my views on property management companies pretty clear. I don't like them. I think that they destroy your profits and can often turn a good property into a dump. But to clarify, I'm speaking about companies who manage multiple properties, not individuals that you hire.

The Landlord Blog has a great post about how she is looking for a new property manager. Instead of finding an advertised company, she advertises in the local paper for an enterprising individual. This is the perfect way to have a property managed if you are unwilling/unable to manage the place yourself. By looking outside of professionals, you get the benefit of dealing with someone more likely to remain honest.

John T. Reed agrees. In his review of Rich Dad, Poor Dad he says (italics are mine):

Kiyosaki [author of Rich Dad, Poor Dad] says, “A great property manager is key to success in real estate.” He’s nuts. Experienced property owners do not hire independent 5%-of-the-gross property-management companies. When syndication was big, those companies owned income properties all over the U.S. They tried to use local companies for everything they needed, but they found they could not get good service out of local property-management companies so they all started their own in-house property-management companies. [...]

The problem with property-management companies is that they neglect properties and use expensive suppliers and subcontractors. I estimate that approximately 90% to 95% of property managers take kickbacks from those expensive suppliers. When I was a property manager I reported a number of bribe attempts to my boss. Both my predecessor and my successor at the job took kickbacks. (A subcontractor showed me a canceled check cashed by my predecessor and my successor was fired for taking kickbacks.) My secretary had worked for a major property-management company before working for me. She said every property manager in her old company took kickbacks.

If you ask the typical successful investor if he ever used a property manager, he will shudder at the memory, admit that he did once, and somberly swear, “Never again.”

Anesia at The Landlord Blog is, in essence if not fact, finding independant contractors to manage her properties. She is creating her own in-house management team. This provides a large number of specific benefits.

• Reliance upon her - Unlike a Property Management Group, her managers probably only manage the properties she assigns them. If she is displeased with their performance, she can replace them. Compare that to a company who likely manages properties for dozens of investors. If you break contract with them they still have plenty of other streams of revenue to fall back on.
• Lack of a network - Because these individuals are likely to only be managing her properties, they most likely don't have a network of contractors that they frequently use. As a result, they're less likely to take kickbacks or order unnessecary work.
• Work on her terms - If you go to a major Property Management Firm and bring your own contract with you, you'll be laughed out of the door. These firms have their own contracts they you have to sign, not the other way around. But when Anesia hires these individuals she can draw up the contracts that they'll work under. Obviously both side need to come to agreement, but that gives you a lot more leverage than the standard PM boilerplate.

Obviously the down side of such an arrangement is that she'll have to be much more active in helping these people manage her properties, in addition to the extra workload of hiring new personnel when one of her managers is fired/quits. But that additional work is worth the risk reduction of having more control over how your properties are handled.

If you choose a professional Property Management Group because you were too lazy to manage your properties, I seriously suggest that you consider other forms of investment (try an S&P 500 index fund. Good returns with minimal effort). But if you want your properties to be managed to free up some time for other activites (like finding new properties), I strongly urge you to review Anesia's methodology and try it for yourself. It'll be far more profitable in the long run.

And if you are in the Phoenix area and are looking for a way into real estate, I suggest you apply to her for the job. Not only can you earn money towards that first down-payment, but you will learn a tremendous amount about real estate and will have regular access to an experienced investor.

When a resident breaks a lease...

I came across an article on apartment ratings that discussed some of the complexities of breaking a lease from the tenant's point of view. At the end of the article is a very long list of comments from people who felt they've been "wronged" by their landlords and deserve to get out of their lease. I'm not here to discuss who is right and who is wrong, since I don't know much about individual situations, but I thought I'd look at some other their comments and talk about them from the landlord's point of view.

I live in Kenosha, WI and rented a condo on Dec. 12, 2005. My lease was extended until May 2007 and I can no longer afford this condo. This situation is so messed up and the story is so long I can't even get into it. How can I break the lease early and still get my deposit back?

Always be prepared and make sure your tenants understand the lease. As I wrote in an earlier post, a lease is simply a list of rules that both you and the tenant agree to wrapped up in legalese. It doesn't have to be terribly difficult to comprehend. And, as good and ethical landlords, we should also do our best to make sure that the tenant understands the lease. Just handing it to them and asking them to sign is not due diligence. At the very least you should brush over every major point on the lease and explain their obligations.

Remind your tenants that a lease is a legal contract like a car loan or a mortgage. If you fell on hard times and couldn't make your car payments, the bank isn't going to be kind and forgiving. As a human being you can be a bit more compassionate than a corporate machine, but you are still running a business and this contract will be treated as such.

Hello. I live in Tampa Florida and I just bought a condominium [...] I can't afford to pay the rent and the mortage at the same time. I'm disabled and I live on a second floor, can i use that as an excuse to move, since that was one of the reason I bought a first floor condo.

Know your rights. There are a great many laws out there designed to protect tenants, most of these are state-based, which makes them even more difficult to research and understand. But all landlords need to keep up on what tenants are and aren't allowed to do. For example, this tenant appears to have no legal ground to exit a lease under claims of disability. She might be able to convince a judge had she become disabled after signing the lease and was unable to use the premises, but it's unlikely that her current argument would stand in court. That she bought a condo without thinking about the lease she was in is a problem that is hers to deal with.

On the other hand, every state that I know of has a law in place to allow military personnel to break a lease without penalty if they are reassigned. The Virginia law (§ 55-248.21:1) requires that they give at least 30 days written notice.

When it comes to a private owner, they don't have the same legal standing as a company in that they often cannot run a credit check on you or send you to a collection agency for amounts due. If you are one of those people who have had bad rental histories or have aweful credit, they are the best places to check into first.

You ARE a company. If anyone read this and laughed, then I can't blame you. The very act of running a business makes you a company in the government's eyes. You may not have the resources or the legal departments of a major rental corporation, but you are legally allowed to do everything they are. That includes credit checks and turning bad debts over for collection. In fact, if there is anyone out there that isn't running credit checks on tenants, you deserve tenants like these. Credit checks might be intimidating, but they are simple once you learn how to use them.

I live alone and it is difficult just getting around now, so I have to move in with some family. However, I still have 2 months left on my lease, but cannot afford to pay now. Is it a binding law or if the apartment management is willing, can they let you out of the lease?

The lease is as binding as you make it. If someone leaves, nothing will happen to them unless you pursue it. This cuts both ways. If the man above did truly fall ill and needed to move in with relatives, you might allow him to break his lease without penalty out of sheer decency. But if a jackass moves out in the dead of winter without warning, nothing will come of it unless you file a claim against them.

A word of warning, I have heard if said many times that pursuing a deadbeat tenant once they have left your property is a waste of time. I have no personal experience with this subject, but be warned that most deadbeat tenants don't have the cash lying around just waiting to be seized. Trying to extract penalties from them post-tenancy can be a long, difficult and possibly expensive process. Often the best you can do is send a collection agency after them and mar their credit history.

hi... there is a sexual predator moving 2 blocks from us and we have a younger daughter.. he is actually a first degree sexual offender meaning the girl molested was under 13 years of age. I was wondering if this allows us to be able to break our lease if we feel unsafe... which we do.

Learn to talk to your tenants. Not everything has to be a fight. In this example explain to them that registered predators are allowed to live almost where ever they want, and that the other parents in the neighborhood who own their houses have no recourse (they can't force the previous owner to buy the house back just because the predator moved in). And who's to say that a predator wouldn't move into your new neighborhood too? You can only live in fear for so long. Form a neighborhood watch and take this opportunity to sit down with your daughter and explain the dangers of people she doesn't know. Work together with your community to actively prevent bad situations from occuring.

In the lease it says that if you break the lease you have to pay equal to 3 months rent. I can not afford rent let alone 3 months of it at one time. Is there anything I can do?

Don't be a dick. Sure, as landlords we hate broken leases. Broken leases lead to all sorts of expenses for us, from advertising for new tenants to vacancies. But don't go overboard in fixing penalties for breaking a lease because sometimes life happens and your tenant gets a new job in another state. Biff and I ask for 30 days notice and then a 1-month's rent penalty. That gives us (in essence) a 60-day window to find a new tenant form the moment we know about the vacancy. I think that is a very reasonable period of time to find someone to fill the place, and very few people ever need to move on less than 30 days notice.

An added bonus of making penalties more reasonable is that the probability of the penalty being paid goes up tremendously. Let's face it, if your tenant gets a new job in Paris, he's going one way or another. If you are asking for his first-born son he's more likely to try to dodge the bill. But asking for something practical (like a penalty equal to one month's rent) means you are much more likely to get that money.

Dealing with other people

The other day I was flipping through a couple of online articles when I came across an interesting piece that discussed Moral Hazards. A moral hazard is an economist's term for a situation where a person who has to make a decision doesn't have to bear the weight of the consequences. In the author's example, he didn't mind parking in a bad part of town because if something happened to his car the insurance company would be the one who wrote the check. In other words "It's not my problem".

How does that pertain to Real Estate? Well in any business you have to deal with people and you can't always trust those people to do what's best by your company. One of your goals should be to remove as many moral hazards from these people as possible, because very moral hazard is an opportunity for someone to make a decision that you'll end up paying for. Let's identify some of the people who may be facing moral hazards:

Property Managers: This is the Big Mama of all moral hazards. A property management (PM) group literally takes over most of your decisions without the incentive to protect your interests. Amongst the moral hazards faced by this group:

• Unnecessary repairs - you are paying for them, not the company.
• Shoddy repairs - the PM group makes no money from the sale of property, just the leasing. They only need to keep the property in working order. Long term problems that affect resale aren't of concern to them.
• Choosing contractors - the PM group often will select contractor to do the work that you are paying for. When dealing with PM groups, contractors will often include a "kickback" in their estimate (if the PM group chooses them, they'll overcharge you and give some of it to the PM group)
• Choosing tenants - as long as the tenants are paying rent, the PM group gets their cut. It doesn't matter if the tenants are destructive, you'll pay those costs.

Many real estate investors, including the highly regarded John T. Reed, have concluded that PM groups are far to dangerous to work with. Instead they recommend either managing the properties yourself or hiring an individual as an employee to do it. Others, such as Rich Dad, Poor Dad guru, Robert Kiyosaki, claim they have better things to do than "fix toilets all day". Deal with PM groups at your own risk.

How can you remove a PM groups moral hazards? The obvious method is simply to not use one. But if you are things can get difficult. Most likely the PM group will be a larger company than you and so you will be dealing with them on their terms. They will draft the agreements and binding documentation that you will have to sign, which leaves you precious little room to protect yourself or remove their incentives.

One thought I had, back when I wanted to invest in my alma mater's college town, was to develop a relationship with some professors who taught property management, and to suggest a program where their students manage the properties for some real-life experience. We changed our business plan before I really worked that idea out, but it might have worked (I can find some obvious kinks in the idea though). Likewise if you want your property to be managed, you'll need to think outside the box or work with a brand new management company who's willing to bend to get your business.

Tenants - Unlike PM groups, these are often an unavoidable group in real estate investing. They'll be on your property 24/7 making every day decisions on how to treat your things. They are, in fact, paying for the right to do this. A few of the moral hazards posed by tenants are:

• Causing damage - tenants will often take small risks (like drinking red wine on a white carpet) that can lead to damage, since it's not their problem.
• Maintenance - tenants (unless they are very long term) will tend to care less about the day-to-day maintenance of the property. They will let things go unreported unless it is interfering with their daily lives.
• Following housing rules - breaking the rules of a Home Owners Association (parking in the wrong spots, leaving clutter in the yard) is less of a problem because the HOA isn't going to go after them, they'll go after you.

So how do you deal with these moral hazards? Some of them (clutter in the yard) can be dealt with in a very strict leases combined with semi-frequent drive-bys. Others (minor damages) can be dissuaded through a security deposit. Maintenance issues can be dealt with by instituting a semi-annual walkthrough. The goal of which wouldn't be to find problems the tenants are causing (you're not spying on them) but to just check the general health of the house (hot water heater works, AC works, roof isn't leaking). Too many landlords let their tenants report their problems to them.

Another way to deal with these problems is to beef up your tenant selection criteria. If they have to be faced with moral hazards, wouldn't you prefer that they be the best possible people to make those decisions?

Contractors - Contractors are yet another group that get to make decisions affecting the health of the house without you. With that comes the temptation to cut corners and other things that you might end up paying for. Amongst those hazards:

• Overly expensive materials - sometimes contractors will push you to use certain materials that will allow them to charge you more
  
• Shoddy materials - other times contractors will use sub-standard materials on a job to cut their costs
• Delays - an hour worked today earns them as much as an hour worked next week. But if you are between tenants, every day costs you money.

The best way to deal with contractors is simply to do your research. While you may not be qualified to remodel a bathroom (which is why you brought in the plumber), you certain can go on-line and research the different types of stone flooring possibilities. If possible, it's often nice to acquire the materials yourself, which allows you to avoid the contractor's markup. If you are on a project that is time sensitive (you can't rent out the place until the job is done) offer incentive to the contractor if they are able to meet certain criteria. And never-ever pay in full for a contracting job until you've seen the finished product and you are satisfied.

As we've seen there are two ways to deal with another person's moral hazards. Either take the decision out of their hands or add incentives. But before you run off feeling high and righteous about how all these people are capable of screwing you over, remember that you too face moral hazards every day. A possibly the worst hazard you will face:

• Delaying repairs - you might be getting a great deal by waiting until next Thursday for the AC repairman to come out, but your tenants living without AC in 100 degree weather might not appreciate it.

So there you have it. Running a real estate business is very simple as far as businesses go, which is why it can be so easy and fun to explore the complexities of it.

What can I take you for? (or: Determining Rent)

Some aspects of landlording are so mysterious that they practically border on the occult. Take setting rental prices, for example. We try and we try and we try, but Biff and I haven't been able to truly quantify fair rent setting practices. When we set the rent on House #1 for the first time, the number was little more than a random fling of a dart at a border of numbers.

If you are setting rent for the first time (or just want some guidance) check out this article from bankrate.com. As with almost everything in real estate, there isn't a rule in there that wasn't meant to be broken, but it's a good launching point.

Especially interesting to me was how the more expensive the home, the lower the capitalization through rental income. Essentially, less expensive home have greater yields. This is fascinating to me because it jives with the research Biff did back in summer of 2005. Here's a glimpse at that research.


The blue line is obviously the average, the red dot is House #1. Note that all the calculations are normalized to square footage. Biff believes strongly (and has brought me around to thinking) that the single most important attribute of a rental property after location is square footage.

Biff's conclusion from his research: "Within range of interest ($50k-$200k) trend is nearly linear (i.e., two $100k houses would likely yield only slightly more as one $200k house). Fewer, more expensive properties are better because they're easier to manage and potentially have better quality renters, but more cheaper properties probably have a slight advantage for profit margin and lower financial risk."

Keeping your balance sheet... well, balanced

Yesterday I talked a bit about some of the stuff you need to have prepared before you get into investment property. That was a bit of a lie. I didn't bother trying to set up any accounting system until we had already closed on our first house. But that doesn't mean that you can just blow it off. Here's a screenshot of the google spreadsheet that I use to track our expenses.


OK, this unfortunately didn't come out nearly as well as I had hoped, so if you click on the photo it will take you to my Picasa site where the screenshot is actually readable. I kinda felt like the Pentagon as I censored all the references to actual people or locations. Bear in mind as you view this that thes are actual transactions that have occured in our company over the last month and a half. All of the numbers are real.

But now let's discuss what information I include in my Accounting Sheet and why. Each one of these columns has a very specific purpose.

Type - This declares the type of transaction that occurred. An expense is something that we paid money for that is tax deductible. Transfers are when we deposit or withdraw cash in a manner that the IRS doesn't care about (such as putting our own money in the account). Income is something that the IRS wants to tax us for. (You'll notice that mortgage payments get their own category apart from expense. That's because they are handled in a very different way than regular deductions).

Date - for obvious reasons.

Then I have three categories for cash amounts; Expenses, Income, and Transfers. Each of these needs to be kept separate come tax-time and I find prefer to keep them in separate columns soley for aesthetic purposes. As explained above, Expenses is for anything we intend to claim some sort of tax write-off for. Income is for anything we expect the IRS to tax. And Transfers are for events that the IRS doesn't care about

We count our deposits as a transfer, we don't claim income when they are paid, but we don't claim a deduction when we return them. I'm fairly certain that is a legal way to handle those transactions. Of course any interest we pay upon the return would go down as a deduction. Does any one know if this is correct?

Paid By - this category is for determining who paid for what. Usually all expenses are paid by the company with the company credit card. However sometime Biff or I have to pay for something with our own cash or credit. In that situation I mark that expense so that whoever paid it can be compensated.

Description - Again with the obvious. Don't slack on this field. You'll be surprised when, 6 months later, you look back at this sheet and have no idea what you spent your money on.

Property - The IRS, when filling out your taxes, asks that you break up your expenses by unit. This field allows you to more easily assign your expenses and your income according to each property. If you have only one property, this is obviously a moot column. But if you ever expand your business, then you'll find this column can save you a lot of time.

Well, there it is. My entire accounting system. It's awfully simple and anyone could fill out those columns if they had any idea of what was going on. Yet it still contains all the data, easily organized, that the IRS will want from you in April. The hardest part of the spreadsheet is simply the discipline to record data on it on a regular basis.

Thus, one of Biff's more crucial roles in the company. Keeping me honest. This weekend I will unfortunately be out of town and unable to blog. But next week I think I'll start by discussing partners in real estate ventures. Advantages and pit falls.

The anatomy of a credit report

Possibly the most devastating step you can make in real estate is selecting poor tenants. Bad tenants can do everything from wreck you house to refuse to pay rent (and then continue to reside on the premises for a couple months while you carry through the eviction process). Needless to say, it's really important to properly screen your applicants.

While there are many things you can look for, one tool that EVERY landlord should use in the credit report. But first you need to know how to read one. Even if you intend to ever be a landlord, this is probably good information to know so you can read your own credit report.

First of all, to legally obtain someone's credit report you need written permission to do so. At the end of the application that I put together a separate page that gives our company permission to run a credit check. If this page isn't signed, the application is discarded. Note that some companies can get around this "written permission" law including credit card companies.

The first thing you need to do is obtain the credit report. You can find any number of sites that offer this service to you by googling the phrase "tenant screening", but here's a few to get you started:
Tenant Verification Services
Certified Tenant Services
American Tenant Screening

Biff and I use TVS, but your mileage may vary. In the end all these services retrieve you the exact same thing. A credit report + score.

So now you have the tenant's credit report. What does this all mean??? Let's break it down. At the top there should be some simple data like Name and Social Security Number to ensure you have the right report. Somewhere below that you should see and area called "Special Messages".

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S P E C I A L M E S S A G E S
***TRANS-ALERT: CURRENT INPUT ADDRESS DOES NOT MATCH FILE ADDRESS***

In this example (pulled from a real credit report) we can see that there is a mismatch between the address we provided the credit agency and the address the agency holds. Usually this is not a big deal, especially if your tenant moves around a lot.

We did have one tenant who had been an identity fraud victim, and that was also noted in this section with a warning.

The next section is a very important one (though it might not exist for applicants with no data to report). It's the list of recent and outstanding collections against the applicant. These reports were designed to be displayed on some super wide sheet of paper and so some creative formatting is necessary to make them readable. I've taken some liberties in formatting to make this explanation easier (and highlighted the columns we're most concerned about). (Also note that these lines are begin taken straight out of an applicant's credit check. They are genuine. Of course I've changed all the data...)

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C O L L E C T I O N S
SUBNAME SUBCODE ECOA OPENED CLOSED $PLACED CREDITOR MOP
COLLECTRITE 08306003 I 09/99 80 MEDICAL O9P

We can see here that a collections agency went after our applicant for an unpaid fee. A little closer examination shows that the debt was from medical bills and was only for $80, and this occurred back in 1999.

ACCOUNT# VERIFIED BALANCE REMARKS
679984 05/02 0 PAID COLLECTION

Here we see that in 2002 the amount owed was paid in full and the collection was closed. This is something very imprint to note, as it can show a dangerous history. Most likely, given the amount, it was a bill that was just put aside and forgotten about. Or perhaps there was a dispute between the applicant and the medical company (a hospital?). Let's look at the applicant's current credit state.

Below this (though some reports may vary in order of presentation) you should see a listing of all the applicants account and how much they owe on them.

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C R E D I T H I S T O R Y

SUBNAME SUBCODE OPENED HIGHCRED TERMS MAXDELQ PAYPAT 1-12 MOP
CITIBANK V 1AC7001 09/01 $ 508 MIN10 111111111111 R01

Looking through the first line we can see that our application has an account open with Citi Bank. That person opened the account in September of 2001 (under the OPENED category) and has, at any one time, had a maximum charge of $508 on it. How relevant is that? Let's look at the next bit of info.

ACCOUNT# VERFIED CREDLIM PASTDUE PMT AMT PAYPAT 13-24 ECOA
601xxxxxxxxx 01/06A $7000 $ 0 $ 10 111111111111 I

Yes, we do get the account number in the credit report. This is a very good reason to check up on your own credit every once in a while. But the only things we're concerned with here are the credit limit and the amount past due. The credit limit is rather self-explanatory, even though our application has never held a charge of more than $508 on this card, they could charge up to $7000. That's a very good sign for us. An even better sign is found under the PAST DUE column. This is the amount of money that the applicant couldn't pay last pay period. A total of $0 means the applicant paid their bill in full. Very good news.

Finally to the last set of data.

COLLATRL/LOANTYPE CLSD/PD BALANCE REMARKS MO 30/60/90

CHARGE ACCOUNT $ 475 48 0/ 0/ 0

All the concerns us here is the applicants current balance. Remember that the more your tenant owes, the less likely they will pay in full, and the more difficult thier cash flow becomes. That's when problems can happen. In this example, with a balance of only $475, it's likely that the applicant will pay this off in full.

The remakrs section can contain various random data, but one important remark you'll often come across is "CLOSED" (or some variation thereof). This indicates that the credit line was paid off and closed, which is usually a good thing.

Now this is just one account listed on the card. In credit report I pulled this example from, the applicant had 20 different accounts. Some were for cars, some were credit cards, sometimes you'll even see mortgages here (one of our current tenants used to own, but sank so much money into the house that it left him bitter towards the entire "owning property thing". While I can't agree with him, this is wonderful for us because he's a great tenant and will keep paying us rent for years to come instead of buying a house and paying the bank.

So what are some things to look for in this section? One warning sign that I watch for are vehicles. Most everyone has a car loan (or, if they are married, two) and so that's not such a big deal. But if those loans seem out of scale with their salary (you did get income information in your application, right?) then they probably are and that can be a warning sign.

Another hazard is the "past due" area. If the applicants don't pay their bills in full that can be bad. Especially if the totals they left unpaid are large. This could indicate that their debt is out of control and you could be providing free housing for a couple of months while you persuade them to relocate (via eviction).

Everyone has their own systems for evaluating risk and determining what a safe tenant ought to look like. The important thing isn't how your system works, it's that you HAVE a system and you evaluate every tenant equally by it. I don't care if that tenant is your nephew, run the credit check. This can save you thousands before troubles begin.

In the next section we can see what many of us have heard about. The "Recent Inquiries" section.

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I N Q U I R I E S
DATE SUBCODE SUBNAME TYPE AMOUNT
06/01/14 ZNY08986312 TENANT VFC S
05/01/16 NDT93259725 DAIMLRCHRYSL

Here we can see the most recent inquiries into the applicants credit in Year/Month/Day format. This applicant's credit has been rather quiet. You can see that Biff and I ran our credit check on January 14, 2006, and that about a year before that Chrysler ran a check. Looking further up we can see that the applicant did, indeed, end up buying a car from Chrysler and financed it through the manufacturer.

Some people swear that too many inquiries is a bad sign, but I have to come across a situation where there were enough queries into an applicant's credit to make me think twice. As always, your mileage may vary.

Finally we get to the summary of the credit report. The credit score.

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M O D E L P R O F I L E * * * A L E R T * * *
*** ALERT: Score: 702: 40 14 13 99 ***

From this we know that the applicant's score was 702. How good is that? In the system the scores range, I believe, from somewhere in the 500's to about 820. Anything near 800 is perfectly flawless credit. Anything below 600 is very high risk.

Biff and I have a general rule that anything above 700 is considered acceptable in our system. If their score is that high they are probably a near-sure thing when it comes to collecting rent. So despite a few misgivings about the applicant's history (including the medical collection) we decided the accept the applicant (the applicant ended up at a different house).

But if an applicant's score is below 700 then we inquire further. It could be that the person just recovered from a medical disaster (but remember, we already know if they currently owe anything) . The gentleman who had a sour experience with owning homes currently has a credit score in the 630's. However Biff and I decided that we would make an exception for him. We haven't regretted it, but we didn't make that decision lightly. We verified his employment, made sure there were no outstanding collections against him, and finally met with him and his family. The lesson here is that every rule can be broken, but make sure you understand why you are breaking it.