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5 Tips to Pick The Right Tenant (and 3 things to avoid)
Dated: December 5 2021
5 Tips to Pick the Right Tenant (and 3 things to avoid)
5 minute read
Real estate investing is considered by many to be one of the safest options for first-timers. Picking the correct area, working out the math (you can use online calculators), and buying at the right time will set you on a path to build generational wealth one property at the time.
Acquiring a cash-flowing investment property is a great start, but only half the battle. The next step is to do the necessary rehab work and ultimately find great tenants. Below are five tips to consider when looking for tenants.
1. Set the standards before listing your property
Since you’re now a real estate investor, you know that when you bought your property you considered location, property cap rate, cash flow, cash on cash return, and so on. In short, you set the standards for what you want and bought a property that checked all the boxes. Do the same with your potential tenants. Answer these and other questions and rent to those who meet the criteria:
Can the person afford to live there? It’s important for the person to afford to pay rent on months when extra expenses occur, such as paying for a car breakdown or Christmas gifts.
Does the person smoke? Smoke tends to soak into the walls and damage the unit considerably. Renting to a smoker will require a new paintjob and likely a round or two of air purifying.
Does the tenant have pets? If it’s not a service animal, you can deny renting to a person if you’re not a fan of pets and the damage they do to a home. Scratched baseboards and cabinets, chewed up furniture and dug up backyard are just a few things a landlord may not want to deal with when renting to pet owners.
2. Take your time
After putting in all the work that goes into buying an investment property, it is easy to give into the urge to get the cash flowing in from your property as soon as possible and rent it out to the first person who applies. That is a rookie mistake. The more work you do picking your tenant, the less work you will have to do once the property is rented out, so take your time and get a few applications in before proceeding.
3. Review applicant’s history
It’s not uncommon for landlords to request the applicant to submit paystubs to verify income. As a pro landlord; however, you care about more than that. Request the tenant to submit a credit report and run a background check (Zillow Rental Manager is a great tool for this and it’s FREE for your first property!).
Most landlords will want a credit score of 620 or higher; however, shooting for a score closer to 700 is generally a good idea. This shows that the person applying to live in your property is responsible and financially disciplined, so even on months with unexpected expenses your rent should be paid on time.
4. Ask the applicant to pay for the background check
If you don’t charge application fees, ask the applicant to pay for the background check. This is a neat trick not to save a buck, but to test the applicant’s character. If the applicant views this request to be unreasonable, chances are as a tenant this person will be high-maintenance and will require more hands on work. If you are an out of state investor or simply before a “set it and forget it” investment – the best way to deal with these type of tenants is to avoid them in the first place.
5. Interview your top picks
Once you went through the checklist and found a few applicants who check all the boxes – invite them to tour the property. This gives the applicant an opportunity to view the home and voice what they like and don’t like. It also allows you to set expectations on the level of maintenance the person will require as a tenant. More importantly, you get to have a human conversation with the applicant and see if you could do business with them. The tenants are the lifeblood of your rental property; therefore, for a healthy business it’s important to partner with someone you can work well with.
Now that you know how to approach the hunt for good tenants, you may also want to know what you, as a landlord, should not do.
1. Don’t discriminate
You cannot refuse to rent to someone due to race, color, religion, sex, national origin, disability/handicap, and family status. This is defined in the Fair Housing Act and is Federal law that should be respectfully followed by landlords.
2. Don’t refuse to make repairs
Nobody wants to spend extra money, but keeping your rental property in good condition is critical not only for property value, but also for your protection as a landlord. It’s illegal to refuse to make repairs that may affect a tenant’s health and safety. Assuming you took the right steps and picked good tenants, you also want to keep them happy and keeping the property well maintained is part of your responsibility as the owner.
3. Don’t get greedy
If you have good tenants who have been renting from you for a while, don’t get greedy and hike up rent during a seller’s market when there is a housing shortage. It’s okay to raise rent reasonably; however, raising rent too high may force your tenants to move and will only lead to more work for you as you try replacing them. Good people are hard to find, so if you have them – take care of them!
Realtor, Trademark Realty Group
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