Episode Transcript

Welcome to Episode Six of Season Four of the Growing Empires show. Today my special guest is attorney Zachary Zawarski and we’re going to talk about best practices for your rental properties. So stay tuned.

00:15

Welcome to Growing Empires hosted by real estate entrepreneur and trusted investment advisor, Jennifer de Jesus. Growing Empires provides insight to building wealth through passive income producing real estate investments for those who want to build and manage a more profitable real estate portfolio.

00:33

So welcome, Zachary, to the Growing Empires show. I’m so glad that you’re here. Let’s kick off this episode about risk mitigation with you sharing a little bit about yourself and your focus areas of your legal practice. Good morning, Jen. Thank you for having me. I’m an attorney in Bethlehem practicing in the areas of real estate law, landlord tenant law and other areas such as bankruptcy. I’ve helped a lot of landlords with the eviction process, handling tenant appeals and also collecting judgments, I believe I could share some insight into steps that landlords should take in order to protect themselves. Fantastic. Well, this season is all about risk mitigation and what a better way to mitigate risk than protecting yourself with the proper legal documentation. Today we’re going to talk about tenant screening and leases and some tips and tricks for landlords and I’ve asked Zachary to join me to share his wealth of knowledge on this topic. So today we’re going to discuss a couple of topics – we’re going to discuss what are some best practices with screening tenants? How can a landlord screen a tenant if they don’t have a management company? What red flags you should be aware of with screening and accepting tenants? Do tenants ever try to scam the system or provide fraudulent documentation that you can protect yourself from what are some of the key ingredients to a great lease? We’ll talk about things like month to month leases versus term leases and advice on evicting tenants and like I said, Zachary has a wealth of knowledge. So we’re gonna get right into these topics.

01:58

So Zachary, what are some of the best practices when screening tenants? Yeah, I would definitely recommend that a tenant complete a rental application. So many times I come across landlords that automatically just jump into a lease agreement without ever getting a rental application from a prospective tenant. So the rental application should gather as much information as possible. The necessities being the prior addresses, employment information, social security number, date of birth, the name of where they maintain a checking account, as well as their automobile information, such as the year, make, model and license plate, and also gather information regarding the reasons for moving. You should also get a copy of the tenants driver’s license, most recent pay stub, most recent bank statement, and even consider getting their most recent tax return. It’s also advisable to order a credit report, but please keep in mind that you would need to obtain the tenant’s written permission in order to obtain their credit report. So all these things should be done before you enter into a lease agreement with a tenant so you could properly screen them. So tell me why you would want to have things like like if you have their pay stubs, why would you want to have a bank statement or a tax return in addition to their pay stubs? Well, a pay stub will only give you so much information. You would want to know what their annual income is whereas a pay stub would only indicate what they’ve made in the last few weeks as well as yearly income. One of the things I always want to check for is to determine if they’ve had steady employment by like taking a look at their year to date income compared to their current pay period. So if that doesn’t equally prorate over the course of the year, that would indicate to me that they have new employment, which could mean that they’re bouncing around from employer to employer, can’t hold down a job and things like that. So that’s one thing that I would take a look into. And then with respect to the bank statement, you’ll know if they’re basically a living paycheck to paycheck, or if they have a little bit of savings built up. So if that there is a fluctuation in their income, or something happens to their job, they would be able to meet their obligations for a few months before experiencing some difficulties. Or maybe if they have bad spending habits. So you mentioned that with the credit report that you need to obtain their written permission, why is that? There are laws which require that a tenant or anyone provide consent for somebody else to pull their credit. So it is required that you obtain the written authorization. I don’t know the exact law but that is something that definitely needs to be done before you would be able to pull somebody’s credit report. And that could be just something as simple as saying, you know, do you give me permission to pull your credit report? Exactly. It just needs to be, you know, one to two sentences, just making it clear that they have given somebody else permission to obtain their credit report. Okay, fantastic. And then I assume if you’ve got to obtain written permission, you’ve got to have some sensitivity to the documents. Right? So is there any regulations for landlords as to how they would dispose of this information or who they can provide it to? I believe – I’m not aware of any specific laws or regulations regarding that. I don’t think that is something that should be shared with third parties, obviously, I think that there’s a duty to keep that information confidential. Once you’re done using that information, it should be either stored securely if you’re storing it electronically, or if you have a hard copy, I would definitely recommend shredding it after you’ve reviewed that. So I would think that just best practices is just best to keep that information confidential.

05:20

Okay. All right. So how can a landlord screen a tenant if they don’t have like the use of a third party management company or some other resource like that? They should definitely develop their own rental application asking for that information that I went over before, I’m sure that there’s rental applications available online in terms of just form templates that could be used. And then they a landlord should also utilize some tenant screening tools. All the three major credit bureaus, Equifax, TransUnion, and Experian, all have tenant screening tools and TurboTenant is another tool that can be utilized by landlords. A landlord also has a lot of free tools available to them in the event that they don’t want to pay extra in order to use those tenant screening tools, which could have fees of about $40 to $60. I think that’s definitely money well spent, but if a landlord doesn’t want to pay for those types of tools, there are a wealth of tools available that are available to the public at no cost. So one, the Pennsylvania Unified Judicial System can be used to see if a tenant has any prior evictions or any other lawsuits filed at the magistrate court level, which is essentially small claims court, it’s where all landlord tenant lawsuits get filed. That’s where all civil claims get filed under $12,000. And you may also be able to see if any criminal charges have been filed against the tenant just by by reviewing the Pennsylvania Unified Judicial System. And then I would also begin doing docket searches of local courts, where any tenant has resided. So for example, if you were to just google North Hampton county docket search, you’d be able to go right to the website where you’d be able to search whether any lawsuits of any kind have been filed against that individual in the Northampton County Court of Common Pleas. So you’d want to search the tenants name, use any other variations of any names that they’ve had, just to see if any civil or criminal proceedings have been filed against them just to be able to do your own sort of background check into it. And these are just utilizing free tools that are available to you. Very good information. I’m sure that’s really helpful. I bet you can find stuff on there too, that would be helpful, that you may not see on an application, right, because they’re likely gonna fail to disclose that information. Perfect.

07:29

So what red flags would you suggest that somebody be looking for when screening or accepting tenants? The biggest red flag is obviously any prior eviction that was filed against them, I would avoid renting to anyone with a prior eviction on their records. And then things that I want to be looking for on the credit report is just to see what their credit card balances are, and see if they have a good history of making timely payments. If they have too much debt and have late payments, that’s another red flag that I would look for obviously indicates that they have trouble managing their finances and could end up in trouble with respect to meeting their rental obligations. And I’d also be concerned if a tenant has new employment as that would indicate that the tenant was recently terminated or as bounced around from employer to employer. Like I mentioned before, you can take a look at their current pay and compare that to the year to date, just to see if this is new employment that they have obtained or if they’ve had steady employment over the over the prior year. So those are the things that I look for in terms of determining if a tenant has any red flags.

08:28

The episode will continue in just a moment.

08:32

To keep your real estate investments working hard at growing passive income, you need to have the right resources to help reduce risk and exposure to over taxation. Having the right attorney, tax advisor and insurance protection is critical to ensuring your investments are safeguarded and set up for success. Knowing tax laws and legal regulations while securing experts who care and understand your goals will allow you to prosper. If you need help finding the right resources to mitigate risk and maximize your tax advantages, let’s talk. I can help you know what to look for how to scrutinize new or existing resources that you have the right fit and get the best protection. Schedule a call with me today and I’ll listen to your goals and make recommendations. To get even more information that will make you a smarter real estate investor, be sure to sign up for the Growing Empires Advisor Guide at GrowingEmpires.com, that’s GrowingEmpires.com, and I’ll help you get the right resources to protect your investments and your future.

09:28

Do tenants ever try to scan the system or provide fraudulent documentation? Have you ever witnessed that? And if you have or even if you haven’t, what can a landlords do to protect themselves from something like this? It’s probably pretty rare for documents such as pay stubs or bank statements to be doctored. It’s always possible but I wouldn’t expect to come across that too often, I think the more common occurrences where a tenant simply provides some false information on their rental application. And that’s why I think getting the credit report is so important by obtaining a credit report, particularly one that shows their prior employment history and prior addresses, you’d be able to match up that information to their application just to see if they provided any false information when they submitted their rental application. Good point. So is that I mean, obviously, when you’re looking at a credit report, you’re looking at their credit, but you’re also using it as a method to kind of double check their application, it sounds like. Correct, not only do credit reports just show their credit history with respect to any types of loans or credit cards that they have, but it’s very common for credit reports to also provide prior addresses as well as prior employers. So that’s also information that can be obtained and reviewed when getting their credit report. Okay, what about landlord references? Would you suggest that somebody review or get previous landlords information to call them and talk about their renting history? Yeah, that’s definitely a common request and would be a great resource to use just to see what their prior landlord has to say about them as a tenant, you’d be able to ask about their prior payment history, whether they would recommend renting to them, find out the reasons that they’re moving. So that would be very, very useful.

11:04

Okay. Tell me what some of the key ingredients are to a great lease. I always recommend the the standard Pennsylvania Association of Realtors lease agreement, whenever I have a client that comes to me and asked me, you know what least they should use, I always direct them to that one, because I always find that it has the best terms that any landlord would want. And really, there’s only two things that I’m looking for if a client ever wants me to review a lease agreement that they’ve been using or that they found on the internet or something along those lines. And really, the two main things that I look for is first a waiver of the notice to quit requirement. So in Pennsylvania before a landlord can file eviction action against a tenant, the landlord is required to provide a notice to quit – a 10 day notice demanding any unpaid rent before an eviction action could be filed in court. But Pennsylvania law also allows that to be waived if it’s provided for in the lease agreement. So if the lease agreement states that the landlord’s not required to provide the notice to quit, before commencing eviction action, they don’t have to go through that process, which can be a little bit aggravating due to the fact that it typically has to be either hand delivered or posted to the door the property. So if you have a landlord that does not live near the property, it becomes a huge inconvenience in order to post that before filing an eviction action in court. So I always recommend way the notice to quit requirement in the lease agreement. Therefore, once the tenant is behind on their rent, you could immediately file an eviction action in court. And the second thing that I always look for is to make sure that your lease agreement gives the landlord the right to recover their attorneys fees. In Pennsylvania, in order to recover your attorneys fees it has to be based upon a contract or a statute. So in order for a landlord to be able to collect their attorneys fees, it has to be specifically listed in their lease agreement, that they have the right to request their attorneys fees if they have to file a lawsuit against the tenant for non payment of rent or for breach of any of the conditions of the lease agreement. So those are the two things that I always make sure that landlords have in their lease agreements. Okay, that’s really great information.

13:02

So what is your opinion on a month to month lease versus a term lease say a year lease or, you know, six month lease something like that? Sure, a month to month or term lease is really a matter of personal preference. I would typically recommend a one year lease over a month a month lease. If a property is going to be a long term rental, you definitely go with a term lease. However, if you’re thinking of selling a property in the near future, or think that you would want to move into the property yourself in the near future, then you would want to go with a month to month lease. And the reason for that is the month to month lease can be terminated just by giving 30 days notice. But the reason that I’m recommending a term lease, if this is a long term rental is that if you have a tenant who stops paying rent, you do have the ability to file a claim against them for any rent that was lost until another tenant is found. Whereas if it’s month a month, then all the tenant has to do is give 30 days notice that they’re moving out and you may be stuck with a vacant property for months without having another tenant and would lose out on that rent. Okay. I would assume you could also do a term lease but put in a notice that you know if in the event of a sale, you could give the tenant 30 or 60 days notice. Does that work? That is a common term that I’ve come across in some lease agreements, mostly lease agreements that I reviewed don’t have that term. And I have come across a lot of people, especially within the last year with respect to what’s going on with COVID that they no longer want to be landlords and just want to sell the property because the markets hot. So my clients have been happy when they found that there is actually a term in their lease agreement with states that if they desire to sell a property, I found what’s more common is that the new owner then has the ability to terminate the lease agreement. But I suppose you could also reword that to indicate that if a landlord desires to sell the property, they have the right to terminate the lease by giving proper notice such as 30 days. Yeah, I’ve always heard people say that they want month to month leases or you know, they think that sometimes that they’re better in a sense that if the tenant is ever misbehaving they can get them out quicker. But I don’t find them to be any quicker than term leases because the minute they break the term, if they have that no notice to quit or the waiver of the notice to quit like you had mentioned before. Essentially you can file actions on them regardless, you know, if they’re breaking a term of the lease. Correct. Yeah. In Pennsylvania, if there’s a non payment issue and they have a term lease, the courts will always grant what’s called a pay and stay which gives the tenant the right to pay whatever is due to the landlord in order to stay the property. However, if they breach the lease terms, such as having a dog in the property when the lease states that dogs are prohibited, then the courts are obligated to grant the possession to the landlord. Thank you for listening to part one. Next week I will be back with attorney Zachary Zawarski in part two of my special guest interview. Until next time, take care.

15:48

For more information about how Jennifer can help you plan, develop and manage a strong real estate investment portfolio, visit GrowingEmpires.com.

Contact for Zachary Zawarski:

Phone: 610-417-6345

Email: zzawarski@zawarskilaw.com