Why You Should Look at More Than Just a Credit Score

You just showed one of your available units to an individual who’s made a great first impression. They’re employed, presentable, and they claim they’ve had a fabulous relationship with their previous landlord. Ok. Seems safe right? Then you check their credit, and discover they have a low credit score. Lots of landlords and property managers will be quick to tell you – forget it. If their credit is low, you’ll probably have a problem. Hold on a second – don’t write them off just yet.

There’s a great article about this by Kay Cleaves at Straw Stick Stone.

As you might know, credit scores only get higher when you borrow and pay back assorted lenders repeatedly. The best tenant theoretically is one who doesn’t engage in risky borrowing beyond their means, and is likely to have a very thin credit history. The part of the credit score that most landlords are interested in is the payment history component. It is possible to have a perfectly great tenant who pays his bills on time, had a great relationship with a past landlord, and is responsible, but has a low credit score. Keep in mind that the average tenant is usually younger, less experienced and less wealthy than a homeowner.

The payment history only accounts for 35% of the total pie, so in other words, while checking credit is something I’m a huge advocate of doing,  just looking at the credit score isn’t the most effective way of determining you’re dealing with a potential problem tenant.

If you’re being diligent, you should be asking for a landlord reference. Calling a former landlord, or as many former landlords as you can, and getting a sense of how that relationship was is also an effective gauge on what kind of tenant you’re going to have. Asking them questions about the previous tenancy, how they kept the place, etc is a must. From personal experience, I’ve been renting to an individual who had a low credit score when I initially showed him the available unit, but who I’ve never had an issue with payment wise, or for anything else. I spoke with their previous landlord and they provided a glowing account of a quiet and reliable individual who was recently out of school and had been working at the same place for more than 2 years. Speaking with the prospective tenant is another good way to get a sense. If a credit score is low, maybe there’s reasons for that. Maybe they’re new with credit, but a seasoned and responsible renter. Maybe they’ve recently applied and received new credit. Maybe they’re paying down some debts that were previously high. There’s an assortment of reasons why a credit score could be lowered that don’t reflect how an individual is with their landlord. Covering all the bases when deciding to rent to someone needs to be done – but basing an assumption on a 3 digit number, of which 35% of that number is what you’re really concerned with, might not be the most effective way in getting the tenant you want.

What do you think? Do you base tenancy decisions on payment history only? Share your thoughts.

Nova Scotia Changes Their Landlord & Tenant Act

Changes are a brewin’ in Nova Scotia. The province has made some amendments (what many landlords and renters consider to be overdue) to their landlord and tenant act that have taken effect November 15th.

Nova Scotia is a bit of a unique landscape for landlords and renters alike. OpenFile published a story in August entitled How To Survive Renting in Halifax – a piece that shone the light on some bad Haligonian landlord situations involving security deposits and issues related to the reasonable enjoyment of some occupied units.  The below is an excerpt from the piece by Lizzy Hill:

At first glance, our city seems like an ideal spot to rent an apartment in. The average rent for a two-bedroom apartment in 2011 was $925, compared with $1,237 in Vancouver and $1,149 in Toronto. And while other cities across Canada recently experienced slight decreases in their apartment vacancy rates, Halifax’s vacancy rates increased from 2.8 per cent in April 2011 to 3.2 per cent in April 2012—people haven’t been snatching up apartments as quickly as they did in years past, so renters presumably have a little more to choose from.

The Residential Tenancies Program sees around 5,000 applications to the director each year—meaning around five per cent of tenant-landlord relationships require dispute/resolution services each year, according to Service Nova Scotia and Municipal Relations’ spokesperson Susan Mader-Zinck. And those are just the cases that make it through theboard program’s bureaucratic application process.

CBC also published a story back in April of this year about groups of residents who were demanding better conditions on units they’ve been renting, and calling for a crackdown on bad landlords. Yikes.

The first significant change is that renters will now have automatic tenure – or right to tenancy, which means landlords have to provide a reason to evict a resident, and there has to be a hearing. Fixed term leases are an exception to this. Prior to these changes, tenants didn’t have tenure until they’d been living in an apartment for five years – at which point they were considered a long-term tenant and were afforded more rights. In that five years, a landlord could opt not to renew a tenant without reason. Some landlords will view this as a negative implication in the act’s changes, as in effect, it makes evicting tenants who pose a problem more difficult. Another perspective on this is that landlords will be extra particular when choosing a candidate to sign a lease with.

Another big change is that rent can only be 15 days late before the landlord can give a tenant notice that the lease will end. Tenants used to have 30 days under the old act. This is a positive change for landlords to be able to react at the RTP level. Another big change includes giving tenants on fixed-term leases the ability to end their leases early, without financial penalties, for health reasons.

Landlords are now required to give a copy of the Residential Tenancies Act to tenants within 10 days of the lease being signed, the keys being provided, the stated date of move in on a lease, or the move in date itself.

Some of these changes are efforts to address some of the concerns residents have about complaints to landlords resulting in a simple request to leave.

For more information on these changes, check out the following links:

Are you a landlord in Nova Scotia? What do you think of these changes? Share your stories and perspectives here. We’d love to hear them. 

 

 

Being A Landlord Isn’t Easy….

There are a few misconceptions about landlords — especially ones who manage their own properties. It’s kind of like the pictures you see sometimes with 6 individual boxes that state what your friends think you do, what your mother thinks you do, and so on and so on…

The idea of being a landlord often either elicits the image of the Monopoly Man building an empire of coloured properties – or –  an evil, cackling, moustache-twisting slumlord who lives in luxury while others finance his way of life. Tell someone you’re a landlord and there’s probably at least a brief mental pause while they picture you nailing an eviction notice on some innocent person’s door who rubbed you the wrong way. C’mon…Landlords get a bad rap.

The term landlord is associated with “land rights” and in the past (as far back as the Roman Empire) it was usually indicative of a wealthy person or an influential individual who held dwelling authority over someone else.

I mean, with a history like that, it can be difficult to assume someone’s a “great” landlord when they tell you that that’s what they do. I don’t think being a landlord is getting anyone points in the popular department (versus someone bottle feeding baby panda bears back from the brink of extinction).

I’m a landlord and I remember while in University, hearing friends of mine complain that their landlord was a rich fascist because he said no to a requested 6-day extension on paying the rent for whatever reason in their 3rd month of a tenancy. They seemed to think that was a more-than-reasonable request. They were university students! They were giving him a day’s notice that they needed another week. A week! 7 days! What’s the problem? As if not even acknowledging the generous heads up from Larry, Curly, and Moe, the landlord gave them a notice of non-payment and unemotionally told them they had 7 days to get him his rent in full and that if it happened a second time they’d need to leave.

The fact is the majority of landlords are not rich. They’re regular people who’ve decided to invest in real estate as a business, committing their time and money to the delicate and difficult art of property management — building and maintaining relationships with tenants, much like customers at any other business. They are the people who have risked their capital, credit, good faith (and sanity) with a bank on the promise that they’ll repay the loan they took out to purchase a property. They’re responsible for the upkeep and maintenance, taxes, insurance, general repairs and all administrative obligations with a dwelling. The buck ends with them — for everything — and they do it with the odds stacked against them when it comes to the likelihood of eking out a profit.

Provincial laws in Canada generally favour tenants and if issues do come up — like non-payment of rent, damage to a unit, or a general disagreement between the landlord and the tenant — the assumption that a landlord can simply “throw a tenant out” couldn’t be further from the truth. Even if the tenant is 100% in the wrong. Anyone who’s ever attended a hearing at a provincial board can tell you that.

It’s not an easy job. As a matter of fact, it’s quite difficult. If you think being a round-the-clock go-to guy for any and every little thing going wrong in someone’s home is a piece of cake, I can tell you a wonderful story during my first year as a landlord that involves a basement apartment, a phone call from two Ottawa cops at 3:30 in the morning, and discovering $8000 worth of damage and 12 squatters in a unit whose tenant was on her way out.

So why bother doing it?

Owning and managing property is, in most cases, a longterm exercise. It’s often compared to running a marathon. There’s a return, but it takes time and work. Property management is littered with constant expenditures, requirements for ongoing financial investments, a stomach for the up and down of the real estate market, and a level of financial and legal exposure that quite often can make you regret you ever signed up for it in the first place. All of this bundled up with a clear set of “do”s and “don’t”s that are regulated by some of the most detailed laws you’ll ever encounter.

It’s not easy and anyone who thinks it is hasn’t done it. Even for those of us who employ professional property managers, the challenges are undeniable. So, the next time you come across a landlord, don’t assume they’re taking baths in 20 dollar bills while they daydream about their secret love of evicting old ladies — they’re regular people with a hard job.