Three questions about employment involving potential applicants income for landlords and investors to check in today’s challenging market about tenants.
Everyone loves a good survivor story. Whether it is a group of 12 boys rescued from a cave in Thailand or the indomitable spirit of a soldier who endured more than two and a half years as a POW during World War II, these stories strike a chord with all of us.
Naturally we put ourselves into the shoes of the survivors and wonder if we would have what it takes to make it through such an ordeal. For the vast majority of us, we will never experience anything even close to the life-or-death battles that these people have undergone, but we do face challenges in an industry that is ever-changing and bringing new challenges on what feels like a monthly basis.
If I were to build a survivor’s guidebook for investors in today’s challenging market, near the top of the list would be these three questions about employment:
1. What type of employment does my applicant have?
For most of your applicants, no job means that within a few months no rent will be paid.
So while it is critical that they are employed, it is also important to look at what type of employment they have. I was reading recently about the types of employment that are most recession-resistant. As expected, at the top of the list were medical professionals and those who have specialized skills in care, therapy and counselling. No real surprise there, as the economy doesn’t care about our health, but it definitely can affect it both physically and mentally.
Next would be individuals employed in law enforcement and public utilities, both essential in our communities. The top six were rounded out by those in financial services and education. The bottom of the list is pretty diverse, with jobs in the construction industry, vehicle sales, and vacation travel.
When reviewing applicants for your property it is vital to analyze not only income, but also the likelihood that their income will survive and economic downturn.
2. How long have they been with their current employer?
Employee turnover is at an all-time high and this can directly affect your tenant’s ability to pay rent.
Job statistics state that 31 percent of employees quit their jobs within the first six months of starting. And even for the employees that make it past those first six months, employee-loyalty statistics show the average tenure of an employee is only 4.2 years.
Gone are the days of the past where someone worked for the same company their entire life. When reviewing a tenant application, make sure to verify how long they have been with their current employer. A conversation with the prospective tenant may shed even more light on this important area, where you can get a feel for how much they enjoy their current employment and if there are any plans to change while they are in your property.
3. How does the rest of their employment history stack up?
Let’s say an applicant would like to rent your property but they just started a new job or are waiting to start in the next few days. What are your options?
You can ask for a more extensive employment history covering the last 12-24 months. Is their new job in the same industry? Were they with their former employer for a long period? Are there any major gaps in their employment history, and if so, can they be explained?
If they don’t want to share this information or if they were employed in a less consistent paying job (sale- commission based, piecemeal work, self-employed service provider), you can always ask for the last 12 months’ worth of bank statements that show money coming into their account. Seeing the past 12 months’ statements lets you average the applicants income and is valuable in determining if they might qualify for your property.
Tough times may lie ahead, and having the right tools and asking the right questions are just as important as food and shelter are for the triumphant survivor. While most of us won’t qualify for the “Hollywood treatment” of our life stories, it doesn’t mean our survival story is less important. After all, to those who depend on your success as a landlord and investor, the results will directly affect their lives.
Knowing that your tenant will be able to pay you every month is the key to you being the hero and survivor that you deserve to be.
About the author:
Scot Aubrey is vice-president of Rent Perfect, a private investigator, and fellow landlord who manages short-term rentals. Subscribe to the weekly Rent Perfect Podcast (available on YouTube, Spotify, and Apple Podcasts) to stay up to date on the latest industry news and for expert tips on how to manage your properties.