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How to Screen Tenants

At MartelTurnkey, our turnkey rental properties are sold with a lease and tenant in place, vetted by a local, professional property management company. But eventually that tenant may move on, and you’ll need to fill the vacancy. With a property management company running your turnkey rental, you don’t have to lift a finger. Even so, if you’re becoming a landlord, you’ll want to understand what goes into the process and why the screening process is so important. Following is some information about both the need for tenant screening and how to conduct the process. This will give you insight into the extreme value of a quality property manager like those that MartelTurnkey works with.

 

Why Do Tenant Screening?

 

The tenant directly impacts your landlord experience whether or not you plan to hire a property manager for your rental property. Tenants do more than just pay rent. You can regard tenants as stewards in many ways. In fact, property managers want great tenants for you, as well. Think about it. When there’s a vacancy, the property manager doesn’t get paid. They typically make a modest percentage of rates, or a per door flat fee. But if there’s no rent, no money for the property manager. So your interest is the same as the property manager’s interest. They want to get you a good tenant who pays on time and lets them know when something needs attention. 

 

Good tenants take care of your property in your absence and alert you or your property manager to any problems. They change HVAC filters as requested, turn off the outside water main in winter to avoid spigots from freezing and maintain a temperate climate to avoid freezing pipes indoors. They park in designated areas only and preserve civil relations with neighbors.

 

A bad tenant can cause a great many problems for the property owner, including:

 

 – financial strain caused by late and/or missing rent payments

 – neighborhood disputes arising from misbehavior/activity/boundary violations/noise

 – property damage

 – damage to landscaping

 – abuse of furnishings/appliances

 – escalation of problems due to failure to report in a timely manner 

 

When you consider all the ways a quality tenant serves you and all the ways a bad tenant can sour your landlord experience, you gain insight into why tenant screenings are crucial and what you should be looking for in a good tenant.

 

The Goal of a Tenant Screening

 

You want a tenant that is going to consistently pay rent on time, take care of the property, keep in touch with you or your property manager about any problems and not cause disturbances in the neighborhood. To that end, you’re looking for a tenant who can keep a job, understands the workings of a house, is respectful of your investment and who fits well into the culture of the neighborhood. 

 

Tenant Screening Background Checks

 

A traditional tenant screening typically includes a criminal background check and a credit check. 

 

Criminal background checks may cover local, state and federal offenses.

 

Depending on state laws, the criminal background check may reveal if the person has an arrest record, outstanding warrants, citations or even dismissed cases where there was no conviction. This check will also inform you if the applicant is on any kind of official list, such as the registered sex offender list. 

 

A criminal background check tells you if the applicant is or was a criminal. You can then use this as a piece of the puzzle to form your overall picture of the applicant. 

 

The credit check will reveal how well the applicant manages their finances. You can purchase a credit check that gives you just a credit score, or you can get a deeper credit check that gives details about payment histories, charge-offs, bankruptcies, etc. 

 

The criminal background check and credit check are the two most commonly used tenant screening tools used. However, there are less formal tenant screening strategies to consider.

 

Additional Tenant Screening Strategies

 

Keeping in mind the role of the tenant in caring for your property investment and respecting the neighborhood culture, here are some additional screening strategies to consider using in order to ensure a successful tenant fit.

 

Call the Former Landlord(s) – Take a few minutes to call the previous landlord(s) about the applicant’s history there. You can only legally ask certain questions, but those questions are sufficient. You may be able to ask:

 

 – Did the tenant pay the rent on time each month?

 – Did the tenant get their deposit back?

 – What was the rent?

 – Would you rent to them again?

 – Was the tenant responsive to communications?

 – Was there any trouble with the tenancy?

 

View the Applicant’s Car – You can get a pretty good idea of how well your applicant would take care of your property by how well they take care of their car. The car doesn’t have to be a late model, but ideally it’s in good repair and clean. 

 

Consider How They Present Themselves – Did the applicant dress for the interview in an appropriate manner? They don’t need to dress like it’s a job interview, but apparel shouldn’t be at the other extreme, either. This conveys their respect for you and the process.

 

These are all things that your property manager takes care of with MartelTurnkey properties. Our property manager teams vet all tenants for a minimum income that’s three times the rent, are currently employed, and have had no prior convictions or evictions.

 

How Not to Screen

 

It’s unfair and illegal to screen tenants on the basis of sex, race, religious beliefs, physical or mental handicaps, nationality or familial status. Everyone deserves to seek and find appropriate and affordable housing. Never let personal or perceived prejudices cloud your judgment when screening tenants. Doing so not only makes you vulnerable to legal ramifications; it also may prevent you from getting a quality tenant who could have taken excellent care of your turnkey rental property for many years.

 

Think Outside the Box

 

Finally, don’t automatically exclude tenants that don’t fit in the standard box of what you think is the ideal tenant. For example, many people these days don’t have W-2 income. Be willing to accept proof of income from alternative sources like private wealth, Paypal or other “gig” income sources. 

 

Many landlords do quite well with Section 8 tenants. refusing to consider this segment of the population may mean missing out on regular, guaranteed subsidized rental income. 

 

The credit score is helpful but it doesn’t tell the whole story.  Ironically, those with lower scores are more likely to renew leases from year to year. Those with higher scores are more likely to leave to buy their own homes, and you could be looking at more vacancies in between lease terms. 

 

Also, some people have trouble paying credit card debt due to medical or other issues, but they always make sure to pay their rent on time. This is why you should always check with former landlords.

 

Finally, don’t automatically exclude applicants with low hourly pay jobs. A big giant salary isn’t always necessary to live on. If your rent is within their means, an hourly job could work out just fine. It’s more important to calculate the income to rent ratio at either 4:1 or 3:1 to estimate affordability for your rental. 

 

As you can see, it’s crucial to consider everything the prospective tenant is responsible for, and to obtain enough information to get a big picture of their suitability as your future tenant. 

 

But wait!

 

You don’t have to do any of this when you buy a MartelTurnkey rental property with one of our property management teams already in place. Our property management teams take care of all landlord issues, from screening tenants to fixing screens! MartelTurnkey properties are true passive income opportunities. To browse available MartelTurnkey rental properties, click here.

 

 

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Is Your Personal Residence an Asset or a Liability?

Investment Property

Homeownership is part of the “American Dream.” In addition to the pride-of-place, the backyard for the kids and the dog, and the opportunity to “keep up with the Joneses,” one of the first finance lessons many of us learn is that a home is an asset. Many families regard their home as the most important asset in their portfolio. 

Is Your Personal Residence a Liability?

Rich Dad, Poor Dad author Robert Kiyosaki famously lit the financial world on fire by describing a family home as a liability instead of an asset. Heresy!

 

But is he right? Let’s look at the arguments on both sides:

“Yes, your home is an asset!”

A home is real estate. Real estate falls under the category of “real asset” — something that has intrinsic worth. It’s not just valuable on paper. It’s a real thing that you can use, like gold or oil. Sure sounds like an asset.

Balance Sheets 101

A balance sheet is a financial statement you use to calculate your net worth. Assets go on one side, liabilities on the other. Liabilities include any loans, accounts payable, or obligations to pay. Subtract the value of the liabilities from the value of the assets, and there’s your net worth. 

 

On a balance sheet, the value of your home goes in the asset column; the balance of your mortgage goes in the liability column. Unless the market tanks and you’re underwater on your loan, the equity is almost always higher than the mortgage. That means that most homes are a positive contributor to your net worth. Still sounds like an asset! 

“No, your home is a liability!”

If the goal is “retirement” — to work until your golden years — there’s nothing wrong with considering your home an asset. It certainly squares with a narrative that most Americans have bought into … and will fight to defend.

 

Your home starts to look less like an asset and more like a liability when the goal is financial freedom.  

 

Kiyosaki defines “assets” and “liabilities” in the following way:

 

    • Asset — something that puts money in your pocket.
    • Liability — something that takes money out of your pocket.

 

There’s no doubt that a home takes money out of your pocket. Mortgage, insurance, property taxes, utilities, repairs … don’t quit your day job. According to industry estimates, a home costs an average of 4-5% of its value to operate every year. In an environment where the home may only be appreciating 4-5% every year, you’re really running to stand still. 

 

Is there a way to avoid this? Not really. Here’s the rub — our need for shelter is a liability, same as our need for food, water, and oxygen. It’s always going to cost us money to live somewhere, whether in the form of rent or homeownership costs. Because of appreciation, owning real estate is often a good long-term financial strategy … but that doesn’t make the personal residence any less of a liability in the Kiyosaki sense.

 

Is there a way to take that same home and make it put money into your pocket?

 

There is — by moving out of that home and renting it out to a tenant! If the rent exceeds the expenses, suddenly you’re putting money into your pocket … and still enjoying exposure to appreciation!

 

Add enough of this rental income to your monthly cash flow, and you can actually replace your work income with rental income. We call this financial freedom — having enough cash flow to cover all your essential expenses, so you never have to work another day in your life if you don’t want to.

 

This is why we think there’s a real argument to be made for taking that money you would have put into a down payment on a home, and making a down payment on rental property instead. It has all the financial benefits of homeownership … plus the benefit of passive cash flow and extra tax advantages. For a deep dive on why you might want to invest in rental property instead of a home, click here.

 

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Whether or not your home is an asset, MartelTurnkey rental properties are definitely assets. We make it easy to add them to your portfolio — without ever having to set foot in them! Click here to see the current assets in our inventory, available for purchase by people just like you. All of them are renovated or in the process of renovation, and many have tenants already in place!

 

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Building Tomorrow: Millennial Real Estate Legacy Strategies

Leaving a RE Legacy

MartelTurnkey attracts individuals from diverse backgrounds seeking cash-flowing assets poised for appreciation. One notable demographic displaying a growing interest in turnkey real estate investment is the Millennial generation. These individuals, aged 26 to 41, have emerged as strategic builders of financial legacies, carving a distinct path amid societal changes. 

 

Contrary to certain stereotypes, many Millennials, whether employed, freelancers or small business owners, possess impressive amounts of disposable income. And many view turnkey rental real estate as a more accessible and secure investment compared to the stock market investments that their parents favored, yet sharing a common focus on leaving a lasting legacy. With familial responsibilities in mind, they contemplate the impact of their digital and economic presence, recognizing life’s finite nature. 

 

In 2022, 54% of purchase mortgage applications came from Millennials, according to CoreLogic. Millennials incorporate turnkey real estate into their legacies in several ways:

 

Self-Expression

Millennials often leverage property ownership as a means of self-expression, naming properties after family members or adopting creative titles. One fun example is a MartelTurnkey client who named his two houses, “Thing One” and “Thing Two” for his future  children. Others choose to express their individualism by imprinting their family name on the buildings themselves, ensuring a lasting historical record.

 

Financial Legacy

Having witnessed unprecedented economic fluctuations, such as the epic rise and fall of Bitcoin, many Millennials prioritize real estate over volatile markets. They understand that, unlike stock ownership, real estate allows them to influence critical choices, such as location and tenant selection. They may envision accumulating a rental property portfolio, offering their children and loved ones diverse financial options for the future, transcending traditional notions of home ownership. It’s their version of building for tomorrow.

 

For the Children

Beyond naming and financial considerations, turnkey rentals provide Millennials with a valuable platform for imparting hands-on financial education. Recognizing the shortcomings of modern formal education, they value the opportunity to cultivate financially literate descendants, laying the foundation for a generation on the path to financial freedom.

 

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If you share a similar focus on legacy, consider reaching out to MartelTurnkey for a conversation. Discover how we simplify the process of buying and owning turnkey rentals, making it approachable for you to construct a real estate empire that not only secures financial freedom but also leaves an enduring mark on posterity.



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Should You Be a Section 8 Landlord? Here are the Pros and the Cons

Section 8 housing has more than a whiff of bad reputation. It calls to mind decrepit slums and unreliable tenants. Why even consider it?

 

Because thousands of landlords swear by the benefits of offering their prized assets as Section 8 housing … and they have a point. As a property owner, subsidized housing offers several attractive benefits.

 

Here are the significant pros — and a few cons — to taking the plunge and becoming a Section 8 landlord.

Pros of Owning Section 8 Rental Housing

Your Rent Payment is Practically Guaranteed

No more chasing down tenants for late rent payments. The rent is paid to you directly from the government housing bureau. As long as the agency remains solvent, your rent should arrive, in full, like clockwork. 

Little or No Vacancy

Forget budgeting for marketing expenses — the housing agency is your marketing pipeline, and it is always full. Subsidized housing is in high demand, with long waiting lists. High-quality Section 8 properties tend to get snapped up quickly. When a Section 8 tenant finds suitable housing, they tend to burrow in and never leave. As such, you can expect very little turnover or loss due to vacancy as a Section 8 landlord. 

Above-Market Rent

The housing office sets the rent your subsidized housing unit is eligible for based on the number of bedrooms. This isn’t always the case, but the subsidized rent you qualify for is often higher than the market rent. Pick your properties correctly, and you could make out like a bandit — not only less vacancy and no skipped rent payments, but a higher rental rate than you would get on the open market.

Well-Behaved Tenants

The stereotype of the destructive Section 8 tenant is far from true. Yes, there are some bad apples, but Section 8 tenants can lose their housing voucher eligibility for disruptive or destructive behavior. Most don’t want to risk it, so they tend to mind their manners and take reasonable care of the property. 

Cons of Owning Section 8 Rental Housing

It Can Take Awhile to Get Approved

While you will have little vacancy once you are on the Section 8 rolls, you might face some front-end vacancy. This is because it can take several weeks or even months to get approved for the Section 8 rolls. Be prepared to carry some costs while you wait.

Annual Inspections

As a Section 8 landlord, you have to submit to annual inspections of the property. This is to make sure that you are keeping the property liveable. With a MartelTurnkey rental, you have a head start with a pristine, renovated property. MartelTurnkey clients are committed to being conscientious landlords, so there’s little to fear from these inspections. 

You Can Only Accept Section 8 Tenants

As a Section 8 landlord, you can only rent to Section 8 tenants. This is little problem for most landlords, though, since the supply of Section 8 tenants usually far exceeds the supply of Section 8 housing. 

Harder to Evict

If you do get a bad tenant, it can be harder to evict due to the housing office bureaucracy. Fortunately, you are still at your liberty to screen tenants for rental and criminal history. You don’t have to accept tenants just because they have a voucher. 

 

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Every MartelTurnkey asset is eligible for Section 8 housing. If you want to take advantage of this lucrative sector of the rental market, call MartelTurnkey today — we have the resources in place to get you started on the right foot!

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Investors Avoiding Michigan are Missing Out Right Now — Big Time

Humans are slow to change. Once we make up our minds about something, we tend to dig in — even when evidence starts flying in the face of the narrative we have adopted. Investors Avoiding Michigan is a good example of that.

 

Case-in-point — Michigan. Investors stuck on a vision of its post-recession decline are ignoring obvious signs of its remarkable recovery. The truth is, very few economic declines are permanent, especially in major population centers. 

 

We keep hammering on this point, but it bears repeating — real estate does not always go up in value steadily! It runs in cycles. Sometimes big ones, sometimes dramatic ones. Remember, California and Florida busted in the Great Recession too … only to boom back bigger than ever.

 

Michigan had a big cycle low … but when we see a big cycle low in a city with strong fundamentals, we typically expect a big rebound.

 

MartelTurnkey has made no secret that we’re investing in Detroit, big time. We’re also on a mission to spread the word to our investing partners — and prospective investment partners — to join us. 

 

We understand the trepidation … but the numbers don’t lie. And they keep telling us we made the right choice. Here’s what we’re seeing that make us more confident than ever about the killer returns available to those who go all in on Michigan:

Michigan is #1 in Economic Improvement Since the Pandemic

According to Bloomberg, Michigan has lead the entire country in terms of economic improvement since 2020, beating out the likes of Indiana, Arizona, Utah, and Tennessee for the #1 spot.

 

Bloomberg also notes that Michigan has far outpaced the national average in terms of employment recovery — a 25% surge in nonfarm employment, compared to the national average of 14.3%. 

 

Home values, personal income, mortgage health, and publicly-traded equities within the state have all appreciated in excess of national averages, while the AA-rated state bonds have far outperformed its regional neighbors as well as outperforming the entire municipal bond market.

Michigan Is Emerging as a Key Tech Hub 

Detroit and Ann Arbor are both giving Silicon Valley a run for its money. Google, Microsoft, Apple, IBM, and RocketMortgage all have headquarters there. So does Amazon, which opened a hub in 2015 and then expanded it in 2020. Apple chose Michigan State University as its partner for its first Apple Developer Academy. 

 

Unsurprisingly, Detroit is #1 in the nation for automobile R&D … but according to Growjo a majority of the fastest-growing companies in Detroit are tech companies. Additionally, the Detroit Metro is has the #2 largest concentration of engineering talent, as well as the #3 best tech talent cost vs. quality ratio, making it one of the most valuable talent markets for tech business. 

 

Michigan is currently #1 in the country for venture capital growth. As if that weren’t enough, Detroit has shown an uncanny knack for fostering Unicorns — jargon in the tech world that means a startup valued at over $1 billion (a big deal among startups). Detroit is home to four Unicorns — Rivian, StockX, OneStream, and Duo Security — making Michigan one of only ten states with more than one Unicorn.

From a Budget Deficit to a Budget Surplus

The solvency of a state’s government directly correlates with its economic strength. By this metric, Michigan is a huge success story. In her 2022 State of the State address, Gov. Gretchen Whitmer announced that the state has gone from a $3 billion projected deficit to a $3.5 billion projected surplus. 

 

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It’s time to bet big on Detroit. MartelTurnkey is in the trenches — and we cordially invite you to join us. If you want to participate with us on one of the smoking-hot Detroit area deals we’re currently developing, reach out to us today. 

 

We’re not kidding — these deals are going fast, so the sooner you reach out to us, the better!

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The 7 Best Detroit Neighborhoods to Invest In Right Now

Pummeled by the 2008 recession, Detroit entered a period of severe decline. Crime, job-loss, population flight…  You couldn’t give Detroit houses away. Many went so far as to predict that it would never recover, as if this heritage city would somehow sink into the Great Lakes, never to be seen again. Reports of Detroit’s death were premature, and then some. In this article we will list the 7 best Detroit Neighborhoods to invest in.

 

Well, never bet against the Motor City. As we have laid out in a series of articles, Millennials are flooding into the city. Investors who bought five years ago have seen their property values more than double. Jobs are coming back, and the city is investing in infrastructure. In short, if you want to get into a boom market on the ground floor, Detroit is the place to do it.

 

Of course, emerging from a decline can be a bumpy ride. Large parts of Detroit have a long way to go. Location matters, as ever, when it comes to real estate investing. In an emerging market like Detroit, you have to pick the right neighborhood to invest in to get the growth without the growing pains. 

 

MartelTurnkey has backed up the truck in Detroit, and we’re scooping up all the property we can. Here are the neighborhoods where we’re doing it — our picks for the seven best Detroit neighborhoods to invest in right now.

1. Eastpointe 

This cheerful bedroom community northeast of downtown shows no sign of the decay and neglect that characterized Detroit’s worst neighborhoods at its nadir. Consisting of more homeowners than renters, the diverse residents display immense pride of ownership and robust community spirit. 

 

Spread out and quiet, it nevertheless enjoys better-than-average nightlife and restaurants for a suburb of this size, as well as several popular summer festivals.

2. Oak Park

Sitting on the border of several far more expensive neighborhoods, the sleepy suburb of Oak Park enjoys spillover from its ritzy neighbors in the form of schools, safety, parks, and excellent city services. Residents banded together during the pandemic, fostering a significant sense of togetherness amongst its 30,000-odd inhabitants.

3. Hazel Park

Residents of the small suburb of Hazel Park love how walkable and manageable the pocket community is. Its easy highway access makes it an attractive choice for commuters, proving to be an area not to be overlooked.

4. Southfield

Young professionals flock to Southfield in search of safe, attractive, tree-lined streets where they can walk their dogs in peace. Southfield Town Center is also a major commercial center of the Detroit Metro, with 27,000,000 square feet of office space contributing jobs to the local economy. 

5. Redford

To the west of Detroit, Redford Charter Township is a close-knit, family-friendly community with a higher-than-average median income. It’s a good area for landlords to invest in because of the higher quality tenants.

6. Bagley

Due north of Detroit, Bagley is a haven of large, historic, well-maintained homes that are currently appreciating quickly. Since we have recently added appreciation rates to our calculations, we are always on the lookout for properties around this area.

7. MorningSide Sub 

“Morningside Sub” is highly recommended due to its prime location nudged up against the East English Village which is one of the nicest and most prestigious neighborhoods in Detroit. Most houses are valued over $200,000. A grand revitalization plan is underway in the east side of Detroit and this suburb is ripe for the taking.

 

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If you’re interested in buying one of our cherrypicked turnkey rentals in one of these seven excellent neighborhoods, reach out to MartelTurnkey today. Detroit is a hotbed of opportunity for investors of every budget.

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Are Condos a Good Real Estate Investment or Are Single-Family Houses Better?

It’s easy to see the appeal of buying a condo as a real estate  investment rental property. First and foremost, they tend to be cheaper. You can usually get a condo for less out-of-pocket than a single-family house in the same neighborhood.

 

Condos can be a good investment. At MartelTurnkey we tend to think it’s hard to go wrong with real estate of any kind as long as you prioritize location and manage your risk.

 

There are, however, some crucial downsides you need to keep in mind. Here’s what to be aware of as you consider investing in condos:

Condos Don’t Appreciate As Quickly

Yes, you can get into a condo for less out-of-pocket than a single-family hom, but you may end up having to settle for less appreciation. If a big part of your investment strategy involves selling or refinancing your property for a profit or capital recapture, condos may not be the ideal vehicle.

 

Conversely, if cash flow is your first priority and not long-term appreciation, a condo can get you there if you run the numbers and manage your risk. As an added bonus, appreciating less precipitously means they don’t have as far to fall in a downturn, so if you want to limit your volatility, condos may actually be a good choice. 

There Are Exceptions

There are circumstances where a condo will appreciate explosively. Remember, the three most important factors in real estate value are location, location, and location. A condo in a location that catches fire with popularity is likely to skyrocket in value right along with the nearby houses — tenant demand is just that strong. Condos in popular urban infill areas will always be in demand, especially in historic, entertainment, and nightlife districts. 

Watch Out for Houses that are Functionally Obsolete

You may be tempted to go with any single-family house if you want appreciation … but be careful. Houses appreciate quickly because they cater to investors and homeowners alike, but you will find minimal homeowner demand for houses that are functionally obsolete. 

 

A house is functionally obsolete when it lacks certain features that the market has come to expect. Examples include a 3bedroom-1bathroom house — most homeowners expect at least two bathrooms. Another example might be an older house that has no dishwasher hookups.

 

A functionally obsolete house in a great location might make a fantastic rental — tenants might be so eager to live in that area that they will compromise on an out-of-date house. Sometimes, functional obsolescence can be cured. However, a condo has little advantage over a functionally-obsolete house.

You May Face Higher Vacancy

This isn’t a guarantee, but condo renters tend to be single people, while a single-family house is more likely to attract a family as a renter. Single people tend to move more often than families which means you will have to deal with more vacancy.

 

This isn’t a guarantee, though. The family you rent a house to may transition to homeownership or simply move on to a shiny new rental. But it’s something to be aware of when calculating your cash flow potential on a condo.

Condos Have Associations and Dues

Condos are usually part of condominium associations, basically a homeowner’s association (HOA) for the entire building. The association has the right to collect regular dues and place restrictions on its owner-members.

 

This might get onerous. The association may demand to screen your tenants themselves. They could fine you for your tenants’ behavior. Some condos will not allow you to rent out your property at all. Condo associations are also notoriously insolvent. If the roof needs repair, or they decide to upgrade the gym (whether you use it or not), they may assess a special and unexpected fee, and threaten you with foreclosure if you don’t pay it.

 

Of course, with a single-family house, you’re on the hook for repairs also, but you are in control. You get to decide when to do the repairs and how much you want to pay. Single-family houses can also be located within HOAs and have all the same downsides. But in general, the condo association is going to be a source of headaches and cash flow uncertainty. Beware.

 

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Condos can be a good investment, but there are several pitfalls to be aware of. The majority of our inventory at MartelTurnkey is single-family homes in desirable neighborhoods. They are usually not the most expensive property on the block which means they have a lot of headroom and excellent investment potential. 

 

Best of all, they come newly renovated, under management, with a tenant already in place! Call us today to find out how easy it is to make one of these cash-flowing properties yours!

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Tenant Screening 101

MartelTurnkey clients don’t have to worry about screening tenants, at least not directly. We find the property, renovate it, place a tenant in, and put the rental under property management. Most of our clients never even see their investment property, let alone meet the tenant. Our job is to provide all the resources necessary for them to do that with ease.

 

Still, a rental property is a significant investment. Landlords depend on careful tenant screening to keep the asset in the black. You should have at least some idea of how to screen a tenant properly. 

 

So let’s look at some quick-and-dirty tenant-screening dos and don’ts. If you ever want to change property managers or hire a property manager yourself, you will at least know what to ask them about their tenant-screening process.

 

Do Verify Income

Consistent income is the best predictor of whether or not a tenant will meet his/her rent obligations. Smart landlords and property managers don’t rely on “don’t-ask-don’t-tell” — they take the time to verify exactly what the prospective tenant does for a living. 

 

Verifying employment or self-employment income is the most common hurdle, but some tenants may have dependable benefits, investment income, or annuities. Ask for documentation of everything. When verifying employment, 2-3 years’ history at the same job is ideal; the bare minimum is the last 3-4 pay stubs or income statements.

 

How much income is enough? Three times the rent in pre-tax income is the rule of thumb, but some managers are more stringent, and lower-income properties may benefit from targeting a lower multiple.

Do Check Rental History

So many evictions, slow-payers, and non-payers can be avoided by checking to see if the prospective tenant has been evicted in the past, or whether they were consistently behind on their rent in the past. 

 

People who pay their rent religiously with few or no complaints from their last landlord tend to repeat the same behavior with the next landlord. It’s not a guarantee, however. Job losses and other emergencies can still arise, but the consistent rental payment history is a good sign, and easy to check. 

Do Check Credit

The credit reports and scores compiled by major credit bureaus contain a record of every American’s payment and debt history. 

 

A look at a prospective tenant’s credit score will tell you several important things, including:

 

– Whether or not the prospect has a history of missing payments.

 

– Whether or not the prospect is overburdened with debt, to the point that they might struggle to make the rent even with robust, stable income.

 

Evictions, foreclosures, court judgments, and bankruptcies may also show up on a credit check.

Do Check Criminal Background

You don’t want a tenant with a serious criminal background. Recidivism rates on past offenders are depressingly high. You can’t collect rent from a tenant who has been hauled off to jail — and if the tenant is on probation, it doesn’t take much for them to be back in the same place.

 

Even if the tenant never re-offends, felons have a hard time finding new jobs if they lose them. At the darker end of the spectrum, you don’t want your tenant running a criminal enterprise out of your property. You could actually be held liable.

 

In some neighborhoods and markets, a completely clean criminal record may be hard to come by. However, good property managers at least put policies in place to reject tenants with high-risk criminal backgrounds — e.g. violent offenses, sex crimes, theft and burglary.

Don’t Break the Law

Federal, state and municipal laws apply to tenant-landlord relations. Obviously, you are not allowed to discriminate by race, sex, and family or parental status (although you may be able to restrict larger families by setting occupancy limits). 

 

State and local rules may also apply to how much information you can legally gather from a prospective tenant, as well as how high of an application fee you can charge. Trust me, you don’t want to be sued for abusive tenant screening practices. Do it by the book. 

Don’t Follow Your Heart

Don’t be charmed by a sweet disposition, a pretty face, or a charming story. You’re looking for a tenant, not a spouse. A tenant with a dreadful personality may be a pain in the rear, but overall it doesn’t matter how much you personally like or despise your tenant, as long as the rent is paid on time and the tenant doesn’t cause too many headaches.

Don’t Ignore Your Gut

It’s great to follow a systematic process of tenant screening, but gut instinct also plays a role. A classic example is a tenant who can’t verify their employment. 

 

“This is stupid! I have the money!” Every property manager hears this at some point. But look past any big bank balances — how did the tenant get the money? If it’s dubious, you may want to reconsider.

Don’t Be Swayed By Sob Stories

Many self-managing landlords form too close a relationship with their tenants. They may be swayed by tales of job loss, cruel ex-spouses, medical conditions … a million and a half reasons why the rent is late, and could you please just make another exception? It will be on time next month, cross my heart!

 

You are running a business, not a charity. You don’t have to be a monster, but most tenants don’t realize the difficulty they put their landlords through. Many assume their landlords are rich, and they may use this assumption to justify manipulative behavior. 

 

Bottom line, though — everyone has to pay their rent or risk losing the roof over their head. Keep tenants at an arm’s length, set policies, and be prepared to enforce them — up to and including filing for eviction. 


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Don’t want to bother with any of this? Remember, MartelTurnkey properties come ready-made with the tenant and property manager already in place. You will never have to see the property or the tenant if you don’t want to. All you see are the cash flow checks. Reach out to us today to find out how we do it!

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Everything You Need to Know About Getting a Mortgage for an Investment Property

We have talked about how powerful it can be to invest in real estate with a mortgage loan for leverage. (Missed the article? Read it here.) 

 

That’s all well and good, but how do you get a mortgage loan on an investment property like a turnkey rental house? Is it like getting a mortgage for your personal residence? Is the process different? Are the requirements different?

 

Here’s what you need to know about the process of getting your first mortgage for a turnkey rental or any 1-4 unit investment property:

1. You Will Probably Get a Conventional Loan

A conventional loan conforms with the underwriting requirements of the Federal mortgage banks, FNMA (“Fannie Mae”) and FHMC (“Freddie Mac”). By conforming to these standards, Fannie and Freddie will insure your mortgage, reducing the risk for the lender and opening you up to the best-available terms.

 

FAQ: Are the interest rate and terms different for an investment property loan? 

Yes. The interest rates for an investment property are higher than for a primary residence. That being said, they are quite uniform across lenders. Our preferred lenders will give you the best rates, subject to your credit and qualifications, of course. Your introduction to them is part of our offering. 

2. Investment Properties Aren’t Eligible for a VA, FHA, or USDA Loan

If Fannie/Freddie loans are available for investors, what about the loan programs insured by the Department of Veterans Affairs (VA), Federal Housing Administration (FHA), or the US Department of Agriculture (USDA)? Those loans have even better terms!

 

Unfortunately, they are also available exclusively to people who intend to use the home as their personal residence. In other words, they are off-limits to a turnkey rental or other investment property.

3. You Will Probably Need to Put 20% Down

Depending on the loan program they qualify for, most qualified buyers only need to put 3-5% down on their personal residence. Sometimes it’s as much as 10%. Sometimes, it’s as little as 0% with a VA loan. 

 

With investment properties, however, the lender will almost certainly require you to put 20% down — and the rates get better when you put more down. Duplexes and multi-family properties require at least 25% down.

 

The rationale is that people will work harder and make more sacrifices to keep their personal residence. In contrast, borrowers are more likely to walk away from an investment property if the going gets tough. After all, they don’t live there.

 

As such, lenders want you to have more skin in the game, a bigger equity cushion, and greater security that if they have to foreclose on the house, it won’t be less valuable than the loan balance.

4. You Will Need Stable Income

Lenders only want to write mortgage loans to borrowers with stable incomes. After all, how else can they expect the borrower to make the payments?

 

What about the rental income from the property… does that count? Not really. On paper, you just need the kind of stable income — wages, salary, investments, pensions, annuities, etc. — that makes you look like a qualified borrower for a loan of this size.

 

FAQ: What if I already have a mortgage on my own home? Do I need double the income to get double the mortgages?

Not necessarily. You just need to check the boxes for a borrower on this kind of loan. As you build a relationship with a lender and a track record of success as a landlord, it will get easier. Your lender will start “rubber-stamping” your turnkey rental loans. 

 

But, at some point — a dozen or more properties in — your lender will max you out at 10 conventional loans. At that point,  it will be time to consider refinancing into a portfolio loan or expanding into commercial real estate to grow your empire. 

5. You Will Probably Need a Higher Credit Score

For a personal residence, mortgage lenders can usually get a mortgage loan done with a credit score as low as 620. With FHA loans, the minimum is even lower — in the 500s. The terms may not be the best, but you can still get the loan.

 

For an investment property, you will probably need a higher credit score. 680 or higher is best. If that’s not you, you may need a co-guarantor with a better credit score.

 

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Need help getting approved for your investment property mortgage loan? We can help! Reach out to MartelTurnkey and we’ll get you pointed in the right direction, including an introduction to our preferred lenders who know our business very well.

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What Happens at the Title Office When You Buy an Investment Property

If you have bought a home before, you probably have some impression of a title office — an attractive storefront where you sit at a big conference table, sign a stack of documents, your realtor pops champagne, hands you a gift basket and maybe balloons, maybe asks you to pose with the keys or a gigantic “sold” sign. It’s like Chuck E. Cheese for adults.

 

Believe it or not, champagne is not required to close a real estate transaction. It’s as much for the realtor to celebrate her own commission as to celebrate your new home.

 

The closing process on an investment property is a lot different. At MartelTurnkey, for example, we’re often helping someone in Ft. Lauderdale buy a house in St. Louis. The buyer won’t fly out for the closing. For them, the “closing” is positively anticlimactic — signing a stack of documents in front of the notary public at their local bank branch. If they want to pop champagne, they probably have to bring it themselves and do it in the car.

 

So is the title office just theatre? Not in the least. Whether or not you ever visit it and get the gift basket, many people work behind the scenes at the title office to make your deal close without a hitch, nipping a dozen or more problems in the bud before you ever have to worry about them. 

 

To understand better, let’s look at some of the most important roles in a title office and how they contribute to a successful closing, whether or not you ever get to meet them.

 

1. Escrow Officer

Remember, escrow is a designated “middleman” service that makes sure both parties to a contract fulfill the duties of the contract. The buyer wires all the necessary funds, the seller signs over the title, and no one gets stiffed by someone else skipping out before their end of the contract is done. 

 

The escrow officer has fiduciary duty over funds held in escrow. Fiduciary duty means acting in someone else’s interest rather than your own. 

 

Say you wire a $50,000 down payment to escrow. That money is out of your bank account and inside a bank account controlled by the escrow officer. What’s to stop the escrow officer from flipping around and using your $50k to buy a Tesla Model S for himself rather than closing your real estate transaction? His fiduciary duty, which he agrees to in the escrow contract and can be sued for if he violates. 

2. Title Agent

The title agent is a specialized kind of insurance agent who procures title insurance for the transaction. The premium for this insurance is one of the closing costs on the transaction.

 

What does this policy insure against? The possibility that you might hand over the entire purchase price to the seller … only to discover that you get no property in return. The seller might have no right to sell that property. Maybe there’s a competing title. Maybe the seller is just a charlatan trying to sell the Brooklyn Bridge, take the money, and run.

 

This kind of thing is rare, but it does happen, and a lot of money is at stake. Attorneys and researchers at the title office are supposed to catch these problems before money leaves escrow, but in the event that the title company makes a mistake, the buyer and the lender can claim any losses against the title insurance policy. 

3. Closing Agent

As I mentioned above, attorneys and researchers at the title office are tasked with making sure the property has a clean title and the seller has the right to sell the property, before any money leaves escrow. The buyer must also wire enough funds to escrow to cover the purchase price and all closing costs needed to complete the transaction. 

 

The closing agent (or settlement agent) is the person responsible for reviewing all this title work and the settlement statement to make sure everything is in order before the transaction closes. She is the “last mile,” the final stamp of approval on the documents before they are presented to the buyer. 

 

If you go to your closing in person, the closing agent will be the one presenting you the documents at that big conference table. If not, the agent will courier the documents to you with indications of where to sign and notarize them.

 

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Ideally, the title office takes most of the legal hassle of buying real estate off your plate. If you want even more of the hassle off your plate, reach out to MartelTurnkey. We cover not only the legal due diligence but also the physical and financial due diligence for you. It’s the easiest way to build a portfolio of profitable real estate investments. We’ll even pop some champagne with you if you’re in town!