A recent blog article in the Wall Street Journal indicates that landlords have “seize[d] the upper hand in [the] apartment market”. This is an interesting development. The article cites the all too common shift where former homeowners are losing their properties to foreclosure and becoming renters. The article specifically singles out Chicago as a place where a renter’s rent is going up from “$765 from $720” because landlords “know they can get more for my unit”. This certainly bodes well for landlords who want to keep their rental units filled.
On the other hand, the rental increase was only 6.25%. How much have expenses risen this past year? How much have property taxes gone up (and how much will they go up after the triennial reassessment of the northwest suburbs shifts more tax burden on Chicago real estate?)
Now, more than ever, landlords have to do their homework when it comes to tenant selection. The good news is that, unlike a few years ago, there are lots of applicants to choose from. No longer does a landlord have to accept a shaky tenant because there are no tenants to find.
The majority of today’s tenants may have some trouble in their history. Many of the “new wave” of renters are coming out of mortgage foreclosure. Their credit ratings are likely to have taken a beating in that process. What is a landlord to do? Be smart. Do your homework. Check references. Confirm employment and salary. As a landlord, you need to figure out if your tenant can afford the rental unit you are offering.
In addition to all of the regular screening done by a landlord, the landlord needs to keep in mind that the tenant pool is filled with renters who got behind on homes they could not afford but who might be ideal renters. For these renters, check to see if, while the foreclosure was ongoing, the prospective tenant was paying all of their other bills. Most people in foreclosure don’t pay their monthly mortgage, homeowner’s insurance, or taxes. They should, however, have the cash necessary to pay their other bills. If other bills were not getting paid during that time, this is a huge red flag.
Run your rentals like a business… because it is a business. A smart landlord will not become embroiled in drama or sob stories. A smart landlord will assess the facts and make a rational decision – even if that decision is to decline to rent. The vast majority of tenant problems can be avoided by proper screening.
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I find that it’s most important to know about the tenant’s background than their credit, especially these days!