Tenant Screening: How to Keep Your Rental From Being Destroyed

Dan Austin: [0:02] On Air Brands. The other piece that's more difficult to gauge is are they gonna trash your place? Mhmm. Because you can't just ask them to put that on an application because they're always gonna say, no. I'm not gonna trash your place. Yeah. But you can look for previous addresses on their application. Mhmm. And you can you know what I mean? You can look back and see where they've lived, currently lived. You can do a couple other things, you know, visually, obviously, when that's why we ask people to come and view the property.

Mike DeHaan: [0:29] Mhmm.

Dan Austin: [0:29] Because we can just kinda see how they carry themselves, how they bring them, how they show up. Right? Because how people show up a lot of times is enough for you to have a good instinct on if they're gonna be a good tenant, if you vibe with them, if if they seem like just good people.

Speaker 3: [0:44] Welcome to the collecting keys real estate investing podcast with your host, Mike DeHaan and Dan Austin. From wins, losses, horror stories, and tactics for optimizing your business, Mike and Dan take a real uncensored deep dive into the ins and outs of running a full time real estate investment and wholesaling business.

Mike DeHaan: [1:07] What's going on, guys? Welcome to episode 38 of the collecting keys real estate investing podcast. Big news out of the feds today. They just did their big interest rate change. They've been talking about 75 basis points currently 06/15/2022. And, you know what that means? The the market does exactly what you'd expect and does not drop, but instead goes skyrocketing upwards after all the doom and gloom.

Dan Austin: [1:35] All this. Seventy seventy five bips, man. And they're like, yeah. It's time to go start buying some more stocks. Yeah. Was looking at I was looking at it. I was weird laughing before this is, you know, my stock, app is all green right now. As of this recording, the S and P's up, which is a couple hours after they announced that when we know 1.28% and, you it was just down almost like a nickel last couple days ago. So, yeah, it's interesting. I think part of it is It's all it's

Mike DeHaan: [2:02] all human psychology, man. Like, like, problem is is that everyone's like, oh, we gotta be scared about this. We gotta be scared about this. And, like, I think one of the biggest things that for some reason I mean, at least I don't really hear people talk about this is with how easy it is to trade these days. Like, you know, gone are the days of people making rational long term decisions in the market for the most part. People are extremely reactive. You know? I mean, people build, like, whole bots, like, trading bots that will go and make decisions purely off of, like, chatter on Twitter. You know? And it just, like, forces the market up and down in, like, these little ways. And people will go and, like, they'll see, like, the tiny change in the upward direction, and it goes. And then you're gonna have the institutional buyers that are chasing swings will go and start piling money in. And then, you know, the casual day traders will go and start piling money in. The next thing you know, all the mom and pops who are out there that are just, like, scared because they've been scared all week. Like, oh, it's going back up. I guess we should buy some more money, and that pumps it up. And then Mhmm. Something else will happen next week, you know, go back down again. And it's honestly nonsense. I

Dan Austin: [3:08] think a big part of it is markets, doesn't matter what market is, markets do not like uncertainty. So once they know, once people know what's happening, then they can move forward. It's like we're seeing that right now in the real estate market with a lot of what I would consider, you know, the residential single family game, like less seasoned or less, you know, seasoned investors. Right? Cause there's a low barrier to entry to be a flipper, wholesaler, all that sort of stuff. And so they get scared really quickly, just like mom and pop investors get scared when they're looking at their, when they're still looking at their stock portfolio. They don't like uncertainty and then markets in general, like uncertainty. So they all kind of like tighten up and get more defensive with uncertainty. And that's where we're at right now. And now they're more certain about what the fed's going to do, which is 75 bips. And they're like, okay, now we know. Cause I mean, ultimately we're all going to, we're going to keep making money. Right? That's what, that's what everybody's thinking. Well, even then part of the process.

Mike DeHaan: [3:57] Yeah. I mean, I don't know. I, like I I I actually don't know the statistic, but I don't know how much of, like, the market is, like, everyday people's money versus, like, just, like, institutional money. Well, at the same time,

Dan Austin: [4:10] it's it is your money. Right? Because the institutions are investing your money. Because the vast majority of America has all their savings, all their money in four zero one k's. Right? That is so true.

Mike DeHaan: [4:20] Yeah. But I guess what I was gonna say with that is, you know, so much of it is still tied to emotions. People always say, like, the markets don't like this. It's like, not that the markets don't like uncertainty. It's just that the people that are consuming the main media that are making these trades, you know, they're all just trying to bet on how whoever Right. Like, what the collective decision is going

Dan Austin: [4:43] to be. That's you're absolutely right. That is yeah. It's it's like, I'm going to try to think about what they're thinking about to make this trade be successful.

Mike DeHaan: [4:51] Correct. Yeah. Which is which is just, you know, like, it doesn't actually it makes it seem so fake to me. Like, I don't know. That's one of the reasons I'm not a big stock guy is because, I mean, to me, it feels like legalized gambling. Like, I understand the tradition you go up and, you know, the old school Warren Buffett method of thinking of, like, invest in stocks that you believe in for a long period of time, blah blah blah. That makes sense. But I also think that that is the most boomer logic because he was doing that way before there were Internet apps, you know, like like, mobile apps that allows you to trade commission free at the press of a button infinitely on margin. Right? Freaking Robinhood lets these people trade on margin with no preapproval, no trade commissions. Right? So now people are literally just using it as a as a casino.

Dan Austin: [5:34] Mhmm.

Mike DeHaan: [5:35] You know? So I don't know. It it is weird to me. But that that change that change in rates, though, which is, you know, on a real estate front is is pretty interesting because, as of this morning, they were saying with that across if you look at four of the six main products that people get, for home mortgages,

Dan Austin: [5:54] it's

Mike DeHaan: [5:54] across 6%.

Dan Austin: [5:55] Really?

Mike DeHaan: [5:55] Which is pretty significant. Yeah. For, for like a residential single family home buyer.

Dan Austin: [6:00] Yeah. But here's the, here's the one point. They've got to have the rates go up so they have somewhere to take them when they bring them back down. Honestly. So they're raising them up, but they know that they can always bring them back down and they will. If the economy needs it, they'll bring them back down. If the economy doesn't need it, then 6% becomes the interest rate we all play with. There were still investors in the eighties when our parents were getting 910% interest rates.

Mike DeHaan: [6:22] Yeah. Yeah. I mean different model. Yeah. It is. And and it well, it's interesting too because, you know, what what the the mortgage rate is not getting that high. Like, that is getting pretty high even It is.

Dan Austin: [6:31] It's not great.

Mike DeHaan: [6:32] A number of years ago, and it is gonna limit buying power for people here pretty quickly. And, also, the psychological aspect of the fact that six months ago in December, you could still get rates at 3%. Right?

Dan Austin: [6:42] And all

Mike DeHaan: [6:43] of a sudden, it's double that. And Prices haven't been able

Dan Austin: [6:46] to adjust yet. You're right. Mhmm.

Mike DeHaan: [6:47] Yeah. So, yeah, I'm I'm not I'm not sure what'll happen with all that. But, I mean, I think it is definitely fair that if you are making offers on properties, you're looking to buy flips or or really anything to maybe add a little bit extra margin. You know, like, we we've started adding in a little bit extra room and being a little more conservative on our offers just because, you know, not necessarily that I'm worried about things going down. I'm just worried about our exit strategies. You know? And I always like to have more than one extra strategy. In fact, we are like, you know, this is why this is important to have more than one extra strategy on this condo deal that we've talked about in previous episodes where we've had you know, we were about to sell this thing and make, like, $80,000. And the day before, we couldn't sell it because of this freaking HOA insurance nonsense where, basically, the HOA, provided insurance for all the units. And they had a couple issues a number of years ago, which made it so that the insurance no longer coverage an appropriate amount for the properties. And so we cannot get a Fannie Mae lender to approve our buyer's loan. So we've been trying to deal with this now for almost six months. And Yeah. We, you know, we don't know when it's gonna end. And as rates are going up, we decided, you know what?

Mike DeHaan: [7:57] We should probably just rent this thing out and refinance out of our hard money and just be in a conservative position. We're gonna tie up some money, but it's gonna cash flow. You know, it's a nicely done property. And we're gonna be able to pull some of our money, but we're still gonna be, you know, in a relatively strong position with it. Right? But that's the key with making sure you have those multiple access. Because imagine if we'd bought that as, a tight flip. You know, we'd freaking screwed right now. Like, we would especially with how the rates have gone up. You know, so many of these investment grade lenders, they require you to have a certain rental rate, like, it's a debt service with a debt service coverage ratio.

Dan Austin: [8:32] Ratio. Yep. Yes.

Mike DeHaan: [8:33] Right? And with how rates are going up, that is now getting smaller and smaller. Mhmm. So if all like, we could very literally have been in a situation if it was tight where we would have to be bringing money

Dan Austin: [8:43] to refinance out of Hit that hit that 1.2 or whatever our letter wants. You know? It's just typical 1.2, typically. Exactly. Yeah. Yeah. Yeah. We would exceed that. And then, yeah, it's funny we got that lead come in. That's the same exact building, but, like, a couple miles away on the same road.

Mike DeHaan: [8:59] Did you see that? Oh, do we? Really?

Dan Austin: [9:01] Yeah. It's it's on that say that that's what caught my eye. It's a duplex. Looks just like ours, which we only own half of because we own a ours is a condo right now. I was like, oh, I'm kinda interested in that one.

Mike DeHaan: [9:11] Well, you mean me that would be guts over. Exactly. An easy run out. Yeah. But, you know, but yeah. Point being, like, when you're going into the deals, I mean, the beautiful thing about off market discounted real estate is, you know, yeah, you have to put a bunch of money and time and effort into finding these opportunities, but it honestly eliminates a huge amount of the risk once you get into the properties because you have so many different options. Yes. You know? Like like, honestly, I worry about some of the people out there right now that have been buying flips over the last you know, through the spring that were, like, basing things off of appreciation or off of, you know, their ability to sell things quickly or or, you know, have Yep. Like, smaller profit margins because, you know, just the psychology of the buying of the buyers right now is gonna be more difficult. And then if they go to refinance out, the rates that are gonna be getting on a refi are gonna be even higher than that six percent that residential, like, homeowners are buying right now.

Dan Austin: [10:08] Totally. Yep. Yeah. It reminds me of our I have some good news for you too. Just got a call from our HVAC guy, for one of our flips that we had to do a furnace inspection on. He's like, yeah. So we're gonna have to replace the furnace and the air conditioning. I was just like, oh, great. So yeah. So it's, I got him talk down to, 7,000 on this thing to do it all. And, it this is a good example, though. We got this flip. We bought this, kind of this spring. We we knew it was gonna be a tight flip. Right? Mhmm. And we could still rent it out, I guess, if we really had to. Like, if we couldn't sell it, we could rent this thing out. Like, it's good. Yeah. And it was a light rehab, so it was pretty low risk. But also, we kind of felt the market the winds were shifting. Right? We could see that this spring when we when we got this thing locked in, finally got the tenants out. So we kind of actually prioritized this one because it was a lighter flip. We pushed it in ahead of some other projects we had, got it done, accepted an offer. It's less than we wanted. And then we had to go through the inspection process, and and this was one of the things that dinged us out. We got everything else pretty much so dialed in when we repaired the place. It only took us, what, two weeks to do this flip.

Dan Austin: [11:18] But So that'll be that'll be interesting. So, I mean, this is like a breakeven deal, but that's not bad. Right?

Mike DeHaan: [11:23] I mean Yeah. So I mean, literally, by the of week.

Dan Austin: [11:26] Bit of a probably a little bit of a loss, but I'm not I'm not, like, upset about it because it we you have like, for where we're at with our business, you're gonna take on a little bit of risk.

Mike DeHaan: [11:36] Mhmm. And

Dan Austin: [11:38] if you're gonna be buying and seeing these opportunities, you're gonna have to take advantage of them as you can. And we locked this thing up and then had to work with the tenants to get them out and all that sort of stuff. And as as that happened, things shifted. However, you know, we have a few other flips on on the docket that have fatter margins, bigger margins, and have better exits as well. And so this is one of those where I'm actually kinda happy just to get it off the books. Yeah. It's not a significant loss. We bought it. We still bought it. Right? We it's just not a house that we want to keep if we don't have to.

Mike DeHaan: [12:10] Mhmm. Yeah. I mean and that's completely right. And it'd be like, the timing of that one was was really important. I think we bought that one, what, back in, like, January. And then we just there was the whole tenant situation that we had to deal with, which kinda dragged it out.

Dan Austin: [12:22] But Mhmm. Well, another thing is too, some of these leads you're working with them thirty, sixty, ninety, one hundred and twenty days. And so you're pretty excited about it when it comes in because you're like, you're looking at that, right? And then so you keep going and then the market can change around you, but you're still in your mind, you're still excited about this deal and you're still committed to it. Then you lock it up for what you were gonna get it at. And the winds have changed a little bit. That's again, that's okay. You have to put yourself in that position, to be able to understand what your exits are going to be and what your risks are going to be. Like, had had would we buy that deal right now? No. Probably not. Not at all. Yeah. We did we were still trying to finish up some other flips, and doing all that sort of stuff, trying to clear them off our books so that we can we can still take down properties

Mike DeHaan: [13:04] Mhmm.

Dan Austin: [13:04] But not have anything that's just sitting there idle. Like, you used to be able to do that. Last year, we did that. Right? You just took opportunities because you knew you're gonna sit on them for a couple months, flip them, and you're still making money. And the prices probably went up while you sat on them. Yeah. I know. And and That's not the case this year.

Mike DeHaan: [13:20] And that's not gonna be the case for most of the time. I mean, like, the last year was very, very unique in that. You know? I I I've heard about people talking about similar situations before 2008, but that was a whole different situation. And because that was artificially inflated because of all the faulty lending practices. Right. You know, now it's just the supply and demand has has caused all these situations, which, I mean, I think I do think the supply and demand is still gonna stay a little bit skewed. But I do think that, you know, the demand is going to drop pretty significantly with these new, you know, these new interest rates coming out that are so much higher. And Right. You know? And it's always tricky too because you see see so many of these different Ardos coming out, and they're talking about, like, you know, oh, inventory is up, like, 75%. And you're like, yeah. I mean, technically, you're true because it went from a 100 properties on market to a 175 property properties on the market. But then if you look back, you just, like, zoom out and you go, like, two years ago, there was 900 properties on the market. Right. Yeah. You're still so much below what was what was considered normal, you know, a number of years ago. But, you know, it it it will be interesting. And then, I mean, just the prices of things as a whole. Some of the reason they raise these interest rates is to make it harder to do business.

Mike DeHaan: [14:43] Mhmm. Like, more expensive to

Dan Austin: [14:44] do business for Cool. Cools it down. Right?

Mike DeHaan: [14:45] Cools down. Right?

Dan Austin: [14:46] Cool. And I think the scary thing too, why they're what we're talking about when you're saying that is they're also talking about doing quantitative tightening, which is pulling money out of the economy, which means the fed will not be repurchasing some of the, bonds they've been buying off of banks, these mortgage backed securities. Yeah. Kind of the shittier securities that are out there. The Fed has been taking those. So now what they're saying is we're taking money out of the economy, and we're gonna raise rates so that you're less likely to do business.

Mike DeHaan: [15:12] Yeah. Which is interesting. And I always think about how that you know, I don't entirely know this, but how that will affect consumer products. Because a lot of it is supposed to be, like, it's gonna slow down business. But, realistically, a lot of these companies are gonna keep doing business. And because it's been proven that they can pass off, you know, a lot of their costs on consumers just with the rising costs of everything that occurred during COVID that people are now accustomed to. And people will keep buying stuff. I mean, companies are going to just keep raising costs again and people are buying stuff. I mean, a, they need to. And b, I mean, they've shown that they're willing to. Right?

Dan Austin: [15:46] Yep. Yeah. They they find they find, what is that term in economics? There's there is some there's capacity. There's like this, this this rubber band kind of effect. Right? You can stretch a rubber band so far, and then it snaps. Well, with your consumer pricing, they've been able because of COVID, they stretched the rubber band. They're like, there's some room there. It's not snapping anymore. That excess is how much more are you willing to pay as a consumer? They're like, stretch it and stretch it until they can't pull that rubber band anymore, then we're stuck with not just inflationary prices, but also opportunistic pricing where you can. Yeah. Which the market, if it's efficient, should knock that down because then, you know, when you buy Oreo cookies, and they're really high high expensive and Chips Ahoy is like, well, we'll go a nickel lower, then people start buying Chips Ahoy. You know? Then you go to Oreo and Oreo drops a nickel, and they should market should come down. Otherwise, that would be price collusion, and now we'd have a antitrust problem.

Mike DeHaan: [16:42] I mean, what what we also know, there's no price collusion or or crony capitalism that happens in United States. So No. It's definitely a problem.

Dan Austin: [16:49] No. No. No. Only happens in, like, little stuff like health care.

Mike DeHaan: [16:52] Yeah. Right. Really small things like like health care and oil and Yeah.

Dan Austin: [16:58] No. Nothing like that. Yeah.

Mike DeHaan: [16:59] Yeah. So yeah. I know. It will be interesting, though, because if that you know, your those prices, though, they do become the norm and people do just start to accept them, which they will. And, you know, they can show that they're making money at those prices to make up for the increased rates that they're borrowing their their money to do business on. And then rates come back down. I hate to break it to everyone, but the prices are not gonna be coming down. They're gonna keep them up there, there's their their profits are just gonna get exponentially higher. I mean, honestly, it's just like for us as real estate investors, those of us that bought properties at, you know, had rental properties on DSCR loans at five to seven or 8% that we bought in 2017, 2018, and we all refinanced our properties at three and a half percent this year. We're making money right now. Like, you know, we're doing money. Extremely well. We had a higher value asset. We were able to cash out all of our equity that was into it, and we're still cash flowing like bastards because the rent went up so much. So and that's exactly the same way that it's gonna work for all these businesses that are making your Oreo cookies you're not paying $8 a pack for.

Mike DeHaan: [17:58] Once they're able to borrow money at 2% again, those cookies are still gonna be $8 a pack.

Dan Austin: [18:02] Yep. Which is a great that's a really great, segue into, like, why you need to screen your tenants.

Mike DeHaan: [18:13] I think I said, oh, yeah. If if your tenants can't afford $8 Oreos, do you even want them in your property?

Dan Austin: [18:18] Yeah. We did have conversation about

Mike DeHaan: [18:20] our our actually, this is

Dan Austin: [18:22] a great inflationary topic too. But as we segue into kind of one of our other topics was, like, how much how many multiples of income of your rent should your tenants have. But Mhmm. With rents increasing pretty rapidly and wages not necessarily increasing, that number might have to change.

Mike DeHaan: [18:38] Yeah. I mean, there's a lot of stuff that we ought we have to have to change about that. So but, yeah, that that'll be our our educational topic today. So you're currently filling our condo with tenants that we that we weren't able to or we we were able to sell. We just don't know when we're actually gonna be allowed to sell it. So, again, some tenants ready, and we figured that going through Dan's process for him to be a good topic. So really quick note about the instant investor program, and then we'll be right back to talk about that. So cool. The instant investor program is our twelve week group coaching program, which includes a self driven course and access to our private investor community. We will take you through the full process of how we find our leads, how we market, how we do our sales and follow-up, and how we determine the best strategy for every opportunity that comes our way. On top of that, you will also join a community of other like minded investors nationwide that are all marching towards the same goals, and you'll have direct access to Dan and myself so you can continue learning and growing with us as we continue to adapt and grow our business. To whether you're a new investor or already established, our systems can help take you to the next level. So if you think you might be a good fit, go to the instantinvestorprogram.com and schedule a call, and we can have you talking to motivated leads in as little as two weeks. Alright. Screening tenants.

Mike DeHaan: [19:50] Probably one of the most important parts about having a rental property is screening your tenants correctly. And yet so many people do it so poorly, and I don't know why.

Dan Austin: [20:00] That's that's where we make our money. We we buy from landlords that should not be landlords.

Mike DeHaan: [20:04] We've made shit tons of money off of tenants. You know? Unfortunately, there tend to be older people who are trusting and get taken advantage of and don't screen their tenants correctly, or they can't figure out the technology to screen them correctly. But you don't have to be that person. You don't have to have us coming and sending you mail and knocking on your door and buying your rental property with your shitty tenant for 60¢ on the dollar. We happily will, but we don't need to be that person. Right. So screening tenants, you kinda handle the property management side of things for us, Dan. What does that normally look like for you?

Dan Austin: [20:36] Yeah. So I would say step back to most of our properties that we own are in Washington. Mhmm. And Washington, like some other states out there, blue states, are really not friendly to landlords. So you have to be extremely cautious because the eviction process can be so daunting and so expensive. You can get caught up in lawsuits and all sorts of issues. Right? We've never had to deal with that. And, actually, we've gone through eviction processes and it's not been that bad, But there is a worst case scenario out there, right, that can totally wreck you. You can be the which we've bought a house from, old retired married couple that moved back to Spokane from New York. They sold their whatever properties over there, decided to park some money in a in a rental property and immediately got taken advantage of for, like, three years. Yeah. They retired in, 2019, moved to Guyan who was an alcoholic, abusive, like, single father who never paid rent, then COVID happened. He never paid rent. They're like, we just need our money out of it. Right? So that can happen. Right? When you're in when you're in a state like we are. So it is really important just in general to screen. But then also screening because you don't want your tenant turnovers to be expensive as hell. Right? Like, you've gone through that in some of your other remote markets that you're in, Mike, and, like, having people trash your place because that can take all your cash flow away.

Mike DeHaan: [21:50] Yeah. Yeah. I mean, I think I think that that super valid point is, you know, when you're screening these tenants, it's not always even just about financials, but it's about them as individuals. You know? You gotta they gotta pass the vibe check because, you know, just because someone makes a lot of money doesn't mean they're not gonna wreck your property. It doesn't mean they're not gonna have crazy dogs, crazy kids, things like that, which technically you're not supposed to, you know, isolate those things that you're supposed to look at the numbers. But, I mean, you are still providing a product, so you can do what you can to protect yourself.

Dan Austin: [22:19] Absolutely. And, like, you and you have to. I don't care what any rule says now. You shouldn't be, you know, judging people or whatever they you know, you shouldn't be going after people based on their race or gender or anything like that. But, like, you should certainly see if they're trashy and they're gonna trash your place. Doesn't matter. I know it's not gonna

Mike DeHaan: [22:36] like, trashy, though. Right? So, like, let let's say we have this scenario where you have two people apply, Well, two groups. Right? One of them is maybe, like, barely qualifying financially, but they're like a young couple. It's just them. They have a small dog. You know, they're just sort of looking for, a starter place to live. Dogs. Sorry.

Dan Austin: [22:53] Not out of here.

Mike DeHaan: [22:55] Yeah. I always take pets because I hate how

Dan Austin: [22:58] some landlords are, though. Right? They're, like, absolutely no dogs because that's an old old school way to do it. Right?

Mike DeHaan: [23:02] Old school way to do it. But let's say you have that person, and then you have a family, right, but crushing it financially. They have good references. They just moved to the area, and they have two large dogs and three kids between the ages of 10 and seven. Realistically, which tenants would you probably want in that property? I know like, I know for me personally, would want the young couple.

Dan Austin: [23:23] Right. Me too. Yeah. And if I could if I could charge, like, children deposits, I would. Yeah. Because kids are way harder on your properties and typically animals. Not that's not always the case. I've had animals trash properties before, but it's typically humans that do the worst damage and they're they're gross people. Yeah. So part of it, like the way the way we do it, so we've been managing our own properties since we started our business. That may not always be the case, but, that's how we've chosen to do it. And so the place that we've been finding the best tenants recently has been Facebook marketplace. Mhmm. That seems to be in our market where most of the people are looking. Now there's an advantage there. Right? Because you can look at tenants profiles before, you know, you you do that, before you you have them apply. Right? So you can kinda gauge some stuff there, like, not a lot, but you just never know. Like, one of the here's a good example. One of the people that that wanted to apply, I just clicked on their profile and their most recent post was, like, eight days ago, was, like, trying to raise money from friends and family because her and her boyfriend were living in a hotel and didn't have a place to live. K. So obviously not financially stable. Yeah. But that wasn't what I would be like.

Dan Austin: [24:36] I think she said that. I mean, they could just be scamming people. I don't know. But then I said, here here's what we require. One thing we require is that you view the property before putting in an application, And we generally require a 600 credit score, three times rent in monthly income, and no evictions in the last seven years. Her response is, well, COVID made it so I don't meet any of those. So I guess I won't apply. Was like, well, perfect.

Mike DeHaan: [25:02] Yeah. Don't apply there. Exactly.

Dan Austin: [25:05] And so I we try to be upfront with people as much as possible because we don't wanna deal with all of the onslaught of folks. Right?

Mike DeHaan: [25:11] Yeah.

Dan Austin: [25:12] You know? 90% of the people that will reply to our postings for some reason have, like, pink or purple hair. I don't know what it is. Like, and it's it's typically women. Women are the ones out there that are searching for the family for a new house because they're the homemakers, all that stuff. I don't know why. They always seem to have different colored hair, which is fine. I don't care.

Mike DeHaan: [25:28] That's that's like a very, like, old school thing of you to say. It's the women just sitting at home looking for probably not true, dude.

Dan Austin: [25:36] I didn't I don't know. I've never personally looked for a rental property myself. I mean, I'm not that that old.

Mike DeHaan: [25:42] But knowing you, look look at look at the side of the the millennial versus the gen x factor that you that you mentally fall on, that makes perfect sense.

Dan Austin: [25:49] Come on. Yeah. But I'm I'm just saying, like, that's what my data shows. I would tell you out of the 100 people that reached out, 95 of them were women. I'm not even kidding. And that to be the trend.

Mike DeHaan: [26:00] Yeah. So I I guess to rehash what you're saying though is so one of the ways that people typically start to try and screen for tenants when they first get started, they don't know any better, is they go you know, I remember when I first started anyway, I was kinda like this. I post my property up for rent on Zillow, Facebook, whatever, and I'm, like, nervous. I'm like, if no one wants to move in? They're going to post, and all of a sudden, people start inquiring. I'm like, holy shit. Is it gonna work? Right? I'm gonna find people. And the next thing I know, I'm having people, you know, they're reaching out. We're having great conversations over whatever. I'm like, you wanna see the place? And they're like, yeah. Absolutely. I say, cool. How about 04:00 tomorrow? That sounds awesome. I got the property, 04:00, they no show. Messaging them, calling them, texting them, they never talk to me again. It's completely gust me. Right? Or, you know, we have people come to the house, and you can tell the second they walk up, you're like, they are not qualified for this. But they're gonna go through and they're gonna have some great sob story about how you should make a special exception just for them. Right? And you should not you know, don't do that.

Mike DeHaan: [26:58] But the point being to avoid all of that, one of the easiest ways to do it is to have those prescreening questions. Yep. Right? Of what's your base credit score? What's your income? Do you have any evictions or criminal records that I need to know about? And if they can't pass those questions, don't even entertain them coming out to your place. You're gonna save yourself so much time on something that's gonna just be a giant headache. Right? Yep. And I guess on top of that too, one of the things that we do is once we do screen down to sort of a good group of people, instead of doing a bunch of these one off showings, we do like a group show. We have, a open house, and that saves a bunch of time as well. Right?

Dan Austin: [27:35] Totally. Yep. That's you you have in in this market right now, because there's so many people. You have to be because also, I would guess at least 50 to 60% of the people that say they're gonna show up don't. Yeah. Even though they're qualified or whatever, they just don't show up for whatever reason. They you know, they're sitting there surfing on their phone, thought it'd be cool, then the next day, you know, you know, they're just like, nah, never mind. I'm not gonna move. That sounds like work.

Mike DeHaan: [27:57] Yeah. They're like, you know, it's it's happy hour at the brewery.

Dan Austin: [28:00] I'm not gonna I'm not gonna go. Yeah. Whatever. Something spurs their reason not to go. But Yeah. It it is really important. And the reason why we have those those financial indicators are that it's indicative of their ability to pay rent.

Mike DeHaan: [28:15] Mhmm.

Dan Austin: [28:16] Honestly. That that's what all those are are all those are for. I mean, the credit score, the evictions, all that sort of stuff is indicative of their ability to pay rent. The other piece that's more difficult to gauge is, are they gonna trash your place? Mhmm. Because you can't just ask them to put that on an application because they're always gonna say, no. I'm not gonna trash your place. Yeah. But you can look for previous addresses on their application. Mhmm. And you can you know what I mean? You can look back and see where they've lived, currently lived. You can do a couple other things, you know, visually, obviously, when that's why we ask people to come and view the property because we can just kinda see how they carry themselves, how they bring them, how they show up. Right? Because how people show up a lot of times is enough for you to have a good instinct on if they're gonna be a good tenant, if you vibe with them, if if, they seem like just good people.

Mike DeHaan: [29:02] Yeah. Yeah. For sure. And, you know, I I I think that's that's sort of super important, is, you know, like, that's where that vibe check comes in if they're gonna, like, trash your house. So they're gonna be the kind of people that just disrespect stuff. And one of the biggest mistakes people make when they do when they're looking at that aspect, the character aspects is they're like, I'm gonna call an employer, or I'm gonna ask for, like, a previous landlord reference. Right? One of the things that, you know, realize if especially if they're already local to the area and they're moving into a new place, look at the place that they're moving from. And if it's equal to or better than the one that you have, why the hell are they moving? Right? I gotta think about the psychology of this. Yeah. Because realistically, it's high it's likely that their previous landlord did not want them there and refused to renew their lease. But he tell you what, you call that landlord and say, hey. Would you give them a rental reference? They're gonna say, absolutely. They would smell awesome because they're trying to pass the duck. They're trying to get out of their place into yours. Totally. Right? So that's not really a great way to prescreen them is going that route. I would say the exception being if someone's moving to the area. So, like, mean, we have a lot of tenants who are moving to Spokane we brought in. You go and you talk to their landlord. It used to be, like, in Alaska, you know, where their or their old boss used to be in Alaska or whatever.

Mike DeHaan: [30:17] They're probably gonna give you a more legit answer. Like, not always, but probably just because they don't have to see this person anymore. They don't care. Yeah. No. Exactly. Believe it. Yeah. Yeah. So, like, they're they're gonna give you a a real response. And it's funny. I actually it was when I was filling one of my places a number of years ago, we had a tenant that was moving here. I called. You know, she gave me three references. I called the first two, and they gave me, like, these glowing reviews of this lady. Mhmm. And then I called the third one, and, you know, I kinda got, like, a funny vibe. So then I asked, like, where she working on sort of stuff. So then I called the place of work, like, directly, and I found out that basically all the three people were fake.

Dan Austin: [30:58] Oh my god. Really?

Mike DeHaan: [30:59] Yeah. So she had basically set them up being like, oh, yeah. Just call, like, my three ex coworkers. This one's my boss. It's all sort of thing. And just like the vibe I got on the phone with them was weird. So I called she was working at a school. I called the school, and I was like, yeah. This is not

Dan Austin: [31:14] You went in deep. Wow.

Mike DeHaan: [31:16] Well, I mean, you know, my bullshit indicator went off.

Dan Austin: [31:18] Yeah. No. I love that. That's, like, that's great, though. You should you shouldn't be following with those references. I mean, that's why according to the Fair Housing Act, like, you only have so many methods to make sure that you're able to screen a tenant properly, and that's one of them. And so I I've always thought that you could easily just put fake you know, on a job application too, like fake references.

Mike DeHaan: [31:40] Yeah. I mean, you've got

Dan Austin: [31:41] a you've got a bullshit radar that's pretty tuned up, man. Nice job. Yeah. I mean,

Mike DeHaan: [31:46] like it's like we're working a job that's heavy on sales and figuring out people's motivations to do things. Right?

Dan Austin: [31:51] Yeah. Absolutely.

Mike DeHaan: [31:52] So but So I think I think, you know, going to postings like, you know, Zillow, Facebook, all those things work. And then doing that prescreen to prequalify people before you bring them to the property is super major, and then Mhmm. Going off the the BS detector once you have them. But I guess are there you know, one of the things that we find a lot, though, too, is credit score. A lot of people fix it on that, especially older people. But I would say it's one of our best tenants, honestly, have had poor credit just because, you know, what you realistically have to do when you look at those things, if people fill out a full application, they pass your BS test, it comes back, their credit's kinda lower than you hoped, but they seem like decent people. You do have to kinda look in and see what those situations were. Like, we had a great tenant for a couple years. She had, like, a five forty credit score because, like, seven years ago when she was in college, she didn't pay, like, some dental bill and got sent to collections, and she let that thing ride for, like, three years.

Dan Austin: [32:44] Right.

Mike DeHaan: [32:44] Like a $58 judgment. Totally. You know? So so that was a huge demerit. And then on top of that, because of that, she wasn't able to get credit cards. She wasn't able to rebuild her credit. Had all these sort of problems. She was a great tenant. Like, I mean Yeah. She lived there for, what, eighteen months. Did we hear from her maybe once?

Dan Austin: [33:01] No. No. She didn't. Yeah. She never called us.

Mike DeHaan: [33:04] She was awesome. She was

Dan Austin: [33:04] a good tenant. Was great tenant.

Mike DeHaan: [33:05] Hardworking. Yeah. Hardworking single mom, two kids. And you can still protect yourself with those things. So what we did, she said, like, well, my mom works at the hospital. And we say, well, is your mom willing to cosign on the lease? The answer was yes. So there you go. So now the second person that we can pursue for rent if needed, but we never had to do it. But Nope. Know, there's still So you have

Dan Austin: [33:24] to you have to judge the character, and I agree. Like, credit score is definitely not like, we're we're flexible on all of those things, and we're gonna have to be more flexible probably on our income requirement as inflation has pushed up. Know, like this place we're leasing now, what do you think, Mike? I don't know. Two years ago, would have rented for, like, $1,200 tops. Probably. Yeah. Max. Now we're renting it for, like, 2,000. Mhmm. I mean, that's huge inflation, and and we can. We have a lot of traffic. Like, we can rent it for that. It's not like we're being crazy people. We could potentially push it higher if we really wanted to. But Yeah. I mean, it was a big jump, and I know people's wages aren't jumping that high.

Mike DeHaan: [33:58] Yeah. Well, I mean, also too, where it gets weird is, you know, when people are charging these crazy rates and they're requiring those requirements for, like, a small place where realistically only one person's gonna live. I mean, is a four bed, two bath Right.

Dan Austin: [34:12] Fully

Mike DeHaan: [34:12] renovated unit. Right? So we charge $2,000, and we will make the monthly household income and income requirement be $6,000. If there are two working adults, I really hope they're both making more than $3,000 a month.

Dan Austin: [34:25] I hope so too.

Mike DeHaan: [34:26] You know, in in this economy, even with never know. Yeah. But I know. Yeah. Exactly. We never know how many application applications that we had on properties that are like, yeah. We are eight adults, and we each make $400 a month. I'm like, what the hell are you doing? Go do anything. Like, you could go get the most basic job, and you could make more money than that. You know, sometimes they're on, like, disabilities. They can't do it or whatever. That's fine. But, regularly, that is not the case. They just Don't

Dan Austin: [34:52] They just don't do it. Absolutely. Yeah. No. You're right. It's like, oh my gosh. You're wasting your time.

Mike DeHaan: [34:57] Yeah. So, yeah, screen tenants, that's huge. And then I think the big thing is when you're talking to these people, especially if you're starting out, realize that tenants are not your friend. Know, You you can be friendly with them, but everything should be firm but fair. And when they ask for concessions or they have kinda, like, weird stuff that comes up, make sure you do have guidelines and rules around, you know, like, a a, the pet situation, you know, rule like, even rules like, what do they do with their garbage bins? Right? Like, what are the policies around having people stay there? You know, are they allowed to have people stay there for a long period of time? You know? And one of the things too that's I would be cautious of just to wrap this up in terms of, like, people staying there. If you have somebody, like, single person, or a, like, married couple that goes in. Right? If their relationship status changes, you need to make sure that it changes on the lease. Yes. Right? And if people are married and they get divorced and one of them leaves, I highly recommend that you, especially if you've been married for a while, that you terminate their lease as soon as you can and you make both of them go. Because I've heard horror stories from several people about, you know, they had a married couple. They got separated or divorced. The person that stayed in the house was real thirsty after fifteen years of a crappy marriage, and they start bringing in whoever they can to come move into their house. And that creates a whole situation because you have not prescreened the person that's now moving into this property.

Mike DeHaan: [36:26] Yeah. You literally did a deal two years ago where the situation was there was a landlord who had the tenant that was married. The, they got separated. Right? Then the wife stayed in the house. The wife got a new boyfriend who was a felon. K? The felon kicked out the wife, and the felon started running a brothel through the property. But because he was a tenant in common in the property, he had lived there for an extended period of time.

Dan Austin: [36:53] Nothing to do.

Mike DeHaan: [36:53] He was receiving mail. There was nothing he could do. Wow. So we had basically come in and bail out the landlord that had a brothel operating in this residential neighborhood that was completely out of his control because he had chosen to renew the lease with this divorced couple.

Dan Austin: [37:09] Real estate's pretty good passive investment. It's just not that passive. You gotta you've gotta at least pay attention what's going on in your properties.

Mike DeHaan: [37:16] Yeah. It's a it's like it's a business with people. Right? It's like it's exactly

Dan Austin: [37:19] has people.

Mike DeHaan: [37:20] There has it has the ultimate, unpredictable variable, which is human beings. Absolutely. You know? So cool. Alright. So basic, rundown there of a lot of different things that we look at for rental properties. And and here here's a quick tip. If you just listen to all that and you're like, yeah. That sounds horrible. Go hire a property management company. They'll do all of it for you. It's gonna cost you money, and you're gonna have to manage them, but at least you're not gonna have to deal with a lot of the bullshit. And, honestly, if you're kind of just have a couple rental properties or they are sort of different social class rental properties than you wanna deal with, just do that. That's what

Dan Austin: [37:54] I would recommend. Way easier. And, you know, you're gonna get income qualified tenants. You may not get the Nuance screening that you would prefer, but that's what you give up. Yep. Exactly. You go

Mike DeHaan: [38:05] to property manager. It's always a trade off. Cool. Alright on, guys. Well, thanks for listening. You should go and download our podcast. You should go and subscribe to subscribe to our podcast. You should leave a five star review, and you should go and tell everyone you know that you think might like this podcast. Go check it out. We're working on growing this audience, and that's extremely helpful. If you wanna follow us, you can follow us both on Instagram. I am at Mike underscore invest. Dan is at investor man. Dan, you can follow the podcast as well at collecting keys podcast where we post a lot of highlight reels from the podcast. And besides that, we have shirts. First five people that DM me and asked me for a shirt. I'll send you one. I didn't have anybody ask me yet. But I guess that episode isn't out yet, so that's why.

Dan Austin: [38:47] That's funny. I was gonna I was gonna mention that. Yeah. You should DM. You should get some shirts out there and also give me one because I still don't have one.

Mike DeHaan: [38:53] Yeah. I'll bring you one today. I also got an envelope full of money for you. Oh, yeah.

Dan Austin: [38:56] Yeah. I love envelopes full of money.

Mike DeHaan: [38:58] Yeah. So, you know, that that that's that's the fun things you gotta do when you do this business is give Yes. I I went to the ATM today. Shwagging money anyway. I tried to submit I tried to deposit my envelope full of cash for a deal which helped someone JV. They paid us in cash, and it wouldn't let me do it because it said I had too many items, too many hundreds. Did

Dan Austin: [39:17] you put

Mike DeHaan: [39:17] that in

Dan Austin: [39:18] the bank, bro? Yeah. Like, money.

Mike DeHaan: [39:20] It was, like, $3,500, you know. So it's, not, like, an insane amount of money, but still $3,500 bills. And, apparently, I learned on ATMs, there's a limit of 30 items you can deposit.

Dan Austin: [39:30] 30 items doesn't even allow being the

Mike DeHaan: [39:32] item. Right.

Dan Austin: [39:33] So, you know,

Mike DeHaan: [39:34] good problems to have. But, anyway, go and subscribe to the podcast. Check us out on Instagram, and I'll see you guys next week. Thanks for listening. See you.

Speaker 3: [39:41] Thanks for listening. Please leave us a review on iTunes or wherever you get your and check us out at collectingkeyspodcast.com for tips and guides on starting your own real estate investment and wholesaling business.