Why Credit Scores Can Mislead Landlords | Smarter Tenant Screening with Richie Rule

Richie Rule (00:00)
the thing is you can’t treat it as an emotional part. It’s a business. and you obviously want, somebody that will take care of the place, will pay rent on time. And a credit score is a credit score. And I don’t look at a credit score so much. Like, yeah, we put a minimum, hey, let’s say it’s gonna be six eighty. But I’ve seen people with, one credit line for one month have a seven thirty credit score. And I’ve seen somebody,

with a huge history.

a long time history with like a six fifty, but they’ve always paid on time. So it’s really about going through the credit report, not just the number at the top.

Freddie Steen (02:07)
Hey everyone. Welcome to the *Investor Fuel* podcast brought to you by *Real Estate Pros*. I’m your host, Freddie and today I’m joined by someone I’ve been looking forward to chatting with all the way from the other coast, the West Coast, Huntington Beach. His name is Richie Rule, and he is the proprietor of Smart One Property Management.

Who’s been making serious moves in the property management space in an environment which can be very hard to understand in California? So, Richie, I’m glad you’re here. I think our listeners are really going to take something away from how you’re approaching the real estate market in property management in Southern California. A lot of regulations in California that a lot of people don’t understand. So let’s dive in. First off, for people who may not be familiar.

With your world, Richie, give us the short version. What’s your main focus these days? And what markets are you operating in?

Richie Rule (03:10)
main focus is, obviously property management, getting new business as a new company, that’s what we want to do. our focus, it’s different. There’s so many different laws changing. Everything is obviously changing. my main goal is well, really, when you get a new client, you’re qualifying them.

If I want to jump into the into the property management part. So I think the main thing is when, you have interest in somebody interested in a property, you have to do the background check, you have to do the credit check, you have to do the residential check, you have to call their landlord, their employer, you really have to qualify them. And I think that’s the most important part of putting somebody into a new place that you need to do. Cause that way you don’t have problems later on.

Freddie Steen (03:57)
Yes, Richie, I completely agree with that. so you’re talking about vetting beyond the credit score. I mean, your team handles deep screening for a family owned shop. How do you balance analytical metrics like credit or income with human intuition to ensure you’re placing the absolute best long term tenant?

Richie Rule (04:19)
See, that’s the thing is you can’treat it as an emotional part. It’s a business. and you obviously want, somebody that will take care of the place, will pay rent on time. And a credit score is a credit score. And I don’t look at a credit score so much. Like, yeah, we put a minimum, hey, let’s say it’s gonna be six eighty. But I’ve seen people with, one credit line for one month have a seven thirty credit score. And I’ve seen somebody, with a huge history.

a long long time history with like a six fifty, but they’ve always paid on time. So it’s really about going through the credit report, not just the number at the top.

Freddie Steen (04:55)
Richie, let’s talk about the your edge as a family-owned local business in Huntington Beach. the generational view is what I speak of. operating a locally owned, family-oriented business means your reputation is tied to the community. You grew up in the community. I mean, in a tight-knit coastal market like Huntington Beach, how does that hyperlocal accountability

Change how you handle landlords and tenants compared to massive corporate property management conglomerates.

Richie Rule (05:29)
Well, it’s about personal service. it’s always being there and understanding obviously the community in the area, but we don’t have an answering machine. when they call, I’ll answer or I’ll get back to them, ASAP as soon as I can. if they email, I’m responding right away. as a corporation, you get an answering machine or you’ll get, a receptionist that says, Hey, they’re not available or whatever it may be.

But this is more of a personal service where we take accountability and we want to make sure everybody’s happy, whether it’s the tenant or the owner. we do work for the owners, but we also want to make sure the home is habitable and the tenant’s okay and everything else. So, we’re always available to make sure, those things are taken care of.

Freddie Steen (06:09)
Talk about that just briefly, the institutional contrast. I kind of want to double down there. corporate property management software and distant call centers often treat properties like spreadsheets. how does your family style business model protect the physical real ass real estate assets of the pros that are listening here on *Investor Fuel* today? I mean, how do you do that while keeping vacancy rates down?

Richie Rule (06:34)
Well, we like to rent out every property within thirty days. we do use professional software. we do have in-house maintenance that keeps the cost down for the owners. I know a lot of companies do outside vendors and they get multiple bids, which is fine, professionals that are licensed and insured. but our inside contractor is also licensed and a contractor, and he’s able to come out and do the work at a much cheaper price.

we we we keep our prices down below market, more as because we’re starting out as a new business, but more as we don’t want to overcharge more than needed. some companies will charge a lot of money and they’ll have miscellaneous fees, inspection fee, renewal lease fee, whatever new contract that they have to sign or whatever it may be.

but we don’t do that. It’s a straight, percentage and a flat fee to get a new tenant in. And that makes it simpler. And yeah, I think having the in house maintenance is a huge benefit as well.

Freddie Steen (07:37)
So you hold your Property Manager Master Certification. What is the biggest blind spot out of state investors like our audience have when trying to lease or manage coastal Orange County real estate?

Richie Rule (07:54)
By themselves or with a management company?

Freddie Steen (07:56)
Both.

Richie Rule (07:57)
Well, out of state is hard to market and show because you’re not physically there. with the management company, I work with a lot of owners that are out of state. and of course, there’s also tax regulations. if they don’t have an address in state, then they’re paying seven percent that I have to hold to the, California tax. So, there’s a lot of different

aspects to that, but yeah, having somebody work living out of state markets and works the same way. It’s just that they’re distant. we’re not meeting in person. It’s more, on email or phone calls.

Freddie Steen (08:32)
You’ve spoken before about properties that look great in photos, but have terrible paperwork or hidden liabilities. Under the hood red flags, what are the top three unseen red flags you look for when vetting a property’s operational history?

Richie Rule (09:37)
Well, we do have owner intake form now. So they have to disclose everything to us. It’s kinda like a real estate transaction where you they they say, Hey, I know there’s this issue, or hey, I know there was a leak here or there was termite damage there. so we have an owner intake form. Obviously I also do a personal inspection of the home.

I test all the items, I look for any damage.

if there’s any leaks that I that they’re not aware of, especially if they’re out of state and they don’t know the condition of their house because they haven’t been there in long time. Right. so it’s important to do your due diligence and bring it up and then have a professional, because I’m not a licensed, professional inspector. I can do a visual inspection, I can test things, but that’s when I bring in a professional if I see some issues. and then we address it. we have to get it we have to get it habitability.

Freddie Steen (10:26)
So important. Richie, I have another question. beyond property management, you have a heavy background as a loan officer, and many of my real estate pros audience may not know that. So let’s lean in, guys, a little bit. How does your deep understanding of the mortgage capital stack alter the advice you give the ladies and gentlemen who are investors listening to us now on the leasing and management side?

Richie Rule (10:54)
Well the mortgage rates are always gonna be up and down. Obviously they’re up, given political and other factors and whatever that may be. but there’s never a bad time to buy. Yes, you could try to time the market, but you never can. if if the best time to buy was fifty years ago, the next best time to buy is today. it’s always gonna increase no matter what.

qualifying, yeah, it can be difficult, but they have a lot of different programs and options that you can choose from. So that’s kind of my take on that, but

Freddie Steen (11:26)
Think it’s a I think it’s a good take, Richie. I mean, let’s talk about financing tight margin deals. with Huntington Beach median single family home prices hovering around 1.5, 1.5, 1.6. what creative financing structures or loan products are actually working right now to keep investor debt service coverage ratios viable?

Richie Rule (11:51)
Well, I would say a lot of people in this particular area have the money to be able to finance, Alt-A plus loans. they’re not really doing subprime over here. maybe, hard money on a second. but ultimately, a lot of people in this particular area, have the ability to to to afford it.

So they’re not having the issues that in other areas where you’d need to find alternative type financing like subprime, this particular area, they don’t really have that issue.

Freddie Steen (12:28)
Mean you talked about boots on ground vetting earlier. You have deep roots in Huntington Beach. when out-of-state or remote real estate investors call you to evaluate a property before pulling the trigger, what local neighborhood secrets do you check that software estimators entirely miss?

Richie Rule (12:49)
when outside investors come, they they it depends. So I I get investor calls every day like, hey, I’m I’m I’m an investor with a company and do you have any, places that are fixers? Like I get that every day. and I’m like, there’s not that many. there are a lot of homes that are distressed. but for outside investors that are actual individuals, not corporations,

they have a they’ve already they’ve already looked at the area, whether it’s remote or not, they know what they want. So then it just segregates down to is there something available in that area that they want, that they already know is what they’re looking for.

Freddie Steen (13:29)
When an emergency maintenance request hits at midnight on a holiday weekend, large corporation, corporate firms, I should say, they often rely on random third-party apps. How has your company built and protected its localized trusted vendor relationships over the years to keep repair costs fair for your investor clients?

Richie Rule (13:54)
See, and that’s a great thing about it is I don’t have to rely on a third party company. Yes, that may charge after our hours if they’re even awake. we’re answering answering the phone personally. it’s not going to like a call center, it’s going to me or it’s going to my other partner. And we’re able to have the ability to go out at any moment to be able to take care of those emergency items. I don’t take breaks, I don’t get vacations.

Freddie Steen (14:20)
Richie, California rent control, I mean eviction, moratorium histories, and strict landlord tenant policies, require constant vigilance, right? How how does your firm proactively shield mom and pop real estate portfolios from expensive legal missteps without losing that personal family run approach?

Richie Rule (14:42)
Well, we always keep up to date with the current laws and that’s really important because they’re constantly changing, especially in this area. I mean even city by city or county by county has different regulations and items that they say, Hey, rent cap is this much here in Santa Ana. It’s usually like two percent. LA has a whole different regulation than Orange County. so you just have to be on top of, those those important laws because

You had to be compliant.

Freddie Steen (15:10)
Absolutely. And have you found that compliance is an area that many shops have been struggling with going into twenty twenty seven?

Richie Rule (15:19)
So I can say working with my past company, we purchased another company about a year ago. and I’ve had other companies and clients come from different management companies. And I can say unfortunately, yeah, they’re very sloppy with their records. whether they have don’t have keys, old agreements, don’t do yearly inspections, don’t know who’s living at the house.

Like those are major issues that you need to be on top of. And I found a lot of other companies don’t do that.

So it’s very, very important, that you’re on top of the regulations, you’re on top with your tenants, your owners, making sure everything’s up to date, you’re doing those inspections, making sure the house is habitable, CO detectors, smoke detectors, these are important things, that if, anything ever happens, yeah, not a good look.

Freddie Steen (16:08)
Love it. what caught my attention about you, Richie, was the way you’ve been able to manage that market in California, highly regulated market. And you’ve been able to do this while keeping your margins strong. that’s not easy, especially in this climate. what’s been the key to keeping that machine running smoothly for Smart One Property Management?

Richie Rule (17:14)
Well we’ve been fortunate enough to start off relatively strong. While we’re only about two months, two and a half months in, we have about thirty five units already. and obviously growing and we’re building our Google profile and business and getting our our leads in and reviews in, I I guess you could say. but yeah.

Freddie Steen (17:42)
Richie, many residential investors are building ADUs in coastal backyards to maximize yields. From a property management standpoint, what are the logistical challenges of managing shared space or multi-unit single family residential layouts on a single lot?

Richie Rule (18:02)
it can be challenging and I do have challenges currently with a property that has a shared driveway as well. we both gave them access to the shared driveway. but it’s a tandem driveway. So, if somebody needs to leave early and the other one can’t move or they’re not available, and then of course you have the common space. so there can be issues depending on the layout of the property, but you have to take them one at a time.

You just have to draw it up, put the lease agreement correctly, make sure everybody’s on the same page and understands and go from there.

Freddie Steen (18:37)
Richie, every operator that I know has a moment where things got real. maybe a deal that went sideways or a time they had to pivot fast. Do you mind sharing one of those moments for you?

Richie Rule (18:50)
I guess it could be an emergency maintenance request. you have somebody that has a a a leaking house and no one to get out there. So you go out there yourself and do it. or you call another individual vendor to come out and fix it. there’s always owners that have issues, tenants that have issues, and all you can do is be compliant and, fix the problem, help the problem.

Make them understand the issue and resolve the issue as best as possible, whether you need to change a different path, whatever it needs to be, you just have to be adaptive to it.

Freddie Steen (19:26)
I think that raises a good point. and I know our *Real Estate Pros* audience would like to know when an emergency maintenance request hits at midnight on a holiday weekend, what is the benefit of Smart One Property Management opposed to a big box corporate property management company?

Richie Rule (19:45)
Well, I think as we talked about earlier, the big box company is gonna have a phone line where, they’re not gonna answer directly, as opposed to when they call Smart One Property Management, they’re gonna get a live person that’s able to get their problem resolved and take care of it at that moment.

Freddie Steen (20:03)
That’s the kind of stuff that people don’t talk about enough. the personalized touch, the localized knowledge. it’s what separates Smart One Property Management from the folks who are just dabbling in real estate, opposed to you and your family legacy who are in the game long term. Richie, let me ask you this. What are you most focused on solving or scaling next? I mean, what’s the next real goal for you?

Richie Rule (20:29)
Well, the next real goal is scaling the business in general. Obviously we’d like to add more units, more doors. not that we want to be greedy, but we’d like to be profitable, obviously, as a company. so that’s that’s the main goal. but of course, making sure we take care of our our our clients, our owners, our tenants, making sure, the homes that we manage are habitable and and okay.

Freddie Steen (20:53)
That’s big, Richie. I mean, especially when you’ve already got your eye on compliance. and you also have this rich family history and the local in market knowledge. I mean, the next move can either compound things or create chaos, depending on how you play it.

Richie Rule (21:09)
Well, I mean, there’s always gonna be chaos and there’s always gonna be issues. I mean, it’s housing and it’s people’s lives. Yeah. So you

Freddie Steen (21:16)
Yeah, it’s also

Richie Rule (21:17)
know, if you’re not taking care of the house, then you’re gonna then you’re gonna have big expense a year later. it’s it’s similar, like let’s say an oven goes out and yeah, you could call repair man and it might cost three seventy. But if you replace it for a hundred dollars more, then you have a brand new oven and it just makes more sense overall to do that.

So those are things you have to look.

Freddie Steen (21:37)
I’m sorry, go right ahead, Richie.

Richie Rule (21:38)
No, no, no, you’re good.

Freddie Steen (21:39)
I wanted to expand on some of the things that you’ve been able to see by walking these properties before, you kind of accept them as clients. that was very interesting to me. Can you kind of talk through what your eye is looking for on some of the walkthroughs you’re doing before, a tenant comes in?

Richie Rule (21:59)
Yeah, so I mean it’s more of a visual inspection. Of course I test items to make sure that they’re working, but again I’m not a licensed inspector. so yeah, does a garbage disposal work? Does it look like it’s rusted out? is a dishwasher look like it’s from nineteen eighty? will this maximize the owner’s investment if he replaces it? is the flooring

or we’re gonna leave it as is. There’s there’s all these little things that, if the owner wants to do, I give them my recommendations to do. Sometimes they do because they want to keep their home, in tip top shape. And then you you have other owners that, kind of live off income and don’t have the ability, but our main goal is make sure the home is habitable. But yes, we’ll always give our recommendation of items that, hey, we could do this or this or this, and you might get more money or not.

there’s a range when I give a market analysis. let’s say the home is a one bedroom, I can say it could rent for eighteen hundred, or if you do flooring painting and do this, then you might get, twenty five hundred. it’s up to them, but I give them that option. But again, habitability is the only main focus.

Freddie Steen (23:06)
Richie, I know a lot of people listening are either earlier in their journey or looking to level up. And I think they benefit from hearing this. When it comes to building relationships and growing your network, what’s made the biggest difference for you?

Richie Rule (23:24)
I’ve reached out to a lot of past colleagues, people that I know are in the business, networking, obviously coming on a podcast with you. these things are beneficial to help grow our business. And we’re just starting out, obviously, but everything helps.

Freddie Steen (23:43)
Yeah. You you can’t fake that. relationships are everything in this space. All right. Richie, before we wrap, if someone wanted to reach out, connect with you, maybe collaborate or learn more about what you’re doing, what’s the best way for them to reach you?

Richie Rule (24:02)
Phone call or email is always great.

Freddie Steen (24:04)
And what is that phone call, phone number and email address?

Richie Rule (24:07)
949 394 3710 and my email is [email protected].

Freddie Steen (24:20)
Well, listen, Richie, I appreciate your time, your story, and your perspective. We need more people in this space who are doing it the right way. Thanks again for being here.

Richie Rule (24:30)
No, I appreciate your time, Freddie.

Freddie Steen (24:32)
And for those of you tuning in, if you got value from this, make sure you’re subscribed. We’ve got more conversations coming with operators just like Richie Rule, who are out there building real businesses just like you. We’ll see you on the next episode.