Beware The Gift Bearing Tenant

By: Wojciech Kic

Prospective rental property owners consider many factors before entering the landlording business. Initially, the future landlord must determine the cost of purchasing the property, the cost of financing, the likelihood of leasing the property, and the amount of the monthly rent.

Once the property is purchased, the owner who is now a landlord must prepare the property for marketing and secure a lease agreement to obtain rent payments.The overall quality of the future lease will reflect the landlord’s business values projected during the tenant selection process.

In theory, the tenant selection process is easy enough to follow by nearly all real estate practitioners. Typically landlords ask a prospective tenant to fill out an application. With a completed application in hand, landlords verify employment to ensure the necessary income, past landlord references, and obtain a credit history from a credit bureau.

In addition, many landlords perform criminal background checks. The positive verification of the accuracy of the tenant’s application allows landlords to lease their properties with a high level of confidence in the future income stream that a lease agreement provides.

Despite screening tenants and obtaining positive verification of the accuracy of the application, landlords are frequently faced with disappointments about the quality of their tenants.The regret over choosing a tenant may be caused by late rent payments, excessive requests for maintenance and repairs, and the less-than-satisfactory upkeep of the property. In such situations, new landlords often grow disillusioned with the landlording business and exit it by immediately selling the property. Other landlords increase future tenants’ acceptance criteria only to experience the same poor lease quality issues all over again.

If, in the above examples, the landlord did what he was suppose to do by obtaining a rental application from the future tenant and ensuring that it met the landlord’s tenant acceptance criteria, what gives?

Landlords frequently overlook that the decision to rent to a tenant is not solely the outcome of the quality of the rental application. Instead the decision to rent is a net composite of the anticipated future tenant’s conduct at the property and the tenant’s written application projected against the property owner’s business value system as a landlord.

Equal housing laws designed to ensure that landlords do not project personal values against future tenants as applicants balance the inherent disadvantage of tenants in dealings with landlords.The equal housing laws thus protect the tenants from misguided landlords.The equal housing laws also help the landlords by reminding them that property income yield will be diminished when rejecting well-qualified tenants for personal bias.Thus the rental market flourishes and enriches society due to the participation of all qualified individuals.

Still, there is no law preventing a landlord from making bad business decisions.

When entering into a lease agreement, the tenant seeks to establish an element of personal control over their relationship with the landlord. After all, tenants regardless of good or bad credit, and across the spectrum of rent levels seek to maximize their personal benefit during the lease.Tenants’ personal benefits in the lease include below market rent, ability to pay rent late, freedom from the landlord’s intrusions, and the ability to cancel the lease at will.

Experienced tenants attempt to tap into the landlord’s value system by early exploitation of the landlord’s weaknesses.Tenants skillfully test landlord’s values during the initial interview process and then seek to obtain lease acceptance based on the tenant’s values. How do tenants establish personal control over a lease agreement? By promising to the landlord a greater profit than the yield of an arms’ length transaction.

The gift-bearing tenants typically set up numerous traps for an unsuspecting landlord. How about getting a tenant who will treat the property as if it were his own? Certainly, no landlord can object. But exactly what does “my own” mean? Does it now mean tenant’s? How did this happen?

How about a promise to leave the property in the same condition or better than today? Is the tenant saying that the property is already trashy? But then why would they want it? Could it mean rallying the neighbors against the landlord for better lease gains? And, finally, the most effective tenant promise of all? The tenant’s vow to provide all repairs.

The expectation of such gains pollutes the landlord’s decision making process. Acceptance of free gift offers makes the landlord permanently beholden to the tenant for the duration of his/her occupancy.

Before falling victim to a tenant’s traps, the landlord must exercise personal control over the property. Personal control means that the landlord does not cede control over the property to the tenant. Personal control means the landlord’s focus on the tenant’s application and the immediate rejection of the tenant’s free gift offers.

If rejection of the tenant’s free gift offers means the loss of a lease to this particular prospective tenant, the landlord should consider it a job well done. Accepting the tenant’s free gift offers means not only a lease agreement on the tenant’s terms, but a loss of personal control over the investment as well. Identification of a tenant’s free gift offers, by the landlord, is usually the most effective means of obviating future lease problems. It is even more effective than the most expansive lease application.

Identifying and rejecting a tenant’s free gift offers are not always easy. For one, it requires an adjustment of the landlord’s mindset.

As an initial practice, before placing your property on the market for rent, practice landlordship by giving $1,000 to a needy charity. And then ask yourself, “Would a needy charity hand me a $1,000 bill?” Landlord is not a needy charity and tenants are not patrons. Expecting tenant’s patronage represents landlord’s demise.

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