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Don’t Say No – Say Yes If…

Posted by paul on September 7th, 2016

A few years ago while at a conference I had dinner with a friend who used to own a property management company in Utah. He now owns a bigger property management company in Las Vegas. While we were talking, he reminded me of a phrase he learned from the UAA 10 years ago at a training and he told me how following that advice has helped his company. What he said was this.

“One of the reasons we are doing so well is that on most of the single family homes we manage, we get huge deposits - between $3,000 to $6,000 in some cases. I learned that from the UAA. Because we get such huge deposits, we almost never have any problems. The tenants pay rent on time. They don’t damage the properties. But if they do, we have these big deposits to cover us. It just works really well.”

He went on to explain the reason he gets big deposits and has so many less problems than he used to is that he religiously follows the “Don’t say no – say yes if…” philosophy.

Don’t say no – say yes if…

This principle, actually called risk based pricing, is prevalent in many industries, but is easiest recognized in buying cars. The customer is assessed for risk, then even if they are not an ideal risk, they are offered a price or terms that are in line with the risk. Even very risky people can buy cars on credit because the risk is a part of the price.

In rentals this principle begins with a good set of rental criteria. Landlords are encouraged to set criteria in multiple areas like:

  • Income and Employment history
  • Credit history
  • Rental history
  • Criminal history

When a person applies, they are evaluated against the rental criteria. If there is an area or two that is high risk, like poor payment history and bad credit, an adjustment can be made to the deposit.

For instance, a person who has a good job, but bad credit for an understandable reason (like a divorce or other extenuating circumstance), might not normally meet a landlords rental criteria. But instead of saying no, the landlord might choose to “say yes if” she puts down a higher deposit or gets a co-signer.

Why many good tenants will pay more to rent from you

I had a young mother once who had lost her husband two years previously. Because she had been a stay at home mom for several years, it took her a little while to get on her feet. When she met me she had maintained a good job for over a year and had gotten on top of her finances. However, because she lived with her father and had bad credit (she got into debt for the funeral and other things after his death but sold her house and paid all her bills), all the landlords she had talked to told her she wasn’t qualified to rent. Her pitch to me was like this “Listen, I know I’m a good person and will make a good renter if someone will take a chance on me. I know because of my background I look risky, but I am willing to have my father co-sign and put down a higher deposit”.

After verifying what she said was true, I increased the deposit from $800 to $2000 and had her father co-sign. She was thrilled. She also was an exceptional renter for many years and left the place immaculate when she finally moved out.

Another time two skiers from out of state wanted to sign a two year lease and live and work in Utah for those two seasons. However, they had only been here 3 weeks and just barely had gotten jobs. My criteria seeks people who have been at their current job six months, so normally their job history would not have been sufficient, but instead of saying no I said yes if they would pay double deposit. They didn’t even bat an eye.

Top reasons to say yes if…

 - Credit problems. A higher deposit and/or co-signer makes someone with bad credit history much less risky

 - no Rental history. a lack of rental history (like first time renters, who are higher risk) can be overcome with higher deposits and/or cosigners. 

  - bad rental history. In some cases, people with bad rental history can be good renters. Most if the time, you would like to see they have addressed the issues to the previous landlord by paying any judgement from an eviction or damages done. But in some cases, even if they haven't completely paid off their debt to a previous landlord, their risk to you can be lessened by higher deposits and/or co-signers

 -insufficient income. It is possible to have a good renter who doesn't have as much income as you would be comfortable with. Students, who often times receive support from parents, are one example. Many in student housing get pre-payment of rent for the year or the semester as a way to mitigate risk. Others require a parent to co-sign. With non-students who don't make enough to qualify under normal standards (usually around three times rent), prepayment, higher deposits and or o-signers can reduce risk

When not to say yes

While finding a way to accommodate people with serious criminal history might feel and look good, saying yes to someone with serious criminal history is a huge risk even with higher deposits or co-signers because they can damage others and get the neighbors and the city mad at you. Be very careful when trying to work with people who have serious criminal history. Always follow your agreements with cities that have good landlord programs. In most of those cities you agreed not to rent to people with certain criminal histories within the past 4 years.

Another issue to be aware of is that certain low income people with income from government programs like section 8, disability, SSI or unemployment cannot have their incomes garnished if they do physical damage to the property. So be careful that you regularly inspects no deal with problems early. Too often landlords that rent to people on these sources of income have no way to recoup the damages done when the tenant moves out. 

Conclusion

Certain times of year, like the fall and winter, can be tough times to fill empty units because traffic (people looking) is a lot less. Using principles like those described above can help you fill units with people who you might not normally rent to in ways that reduce risk and protect you. 

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