Finding the right tenant is absolutely paramount in the landlord business, especially for part-time investors for whom time is limited and has the responsibilities of fulltime employment. A good tenant will likely result in a good landlord experience, while a bad tenant is guaranteed to result in a very bad landlord experience. While we cannot eliminate the possibility of a bad tenant, through proper property characteristics and a detailed tenant screening process, we can diminish the possibility of bad tenants, save money and time, and, most importantly, reduce stress.
While financial means to pay for rent alone does not make a good tenant, it is a prerequisite. Purchasing properties in areas where median income supports your targeted monthly rent will increase the tenant pool of financially qualified tenants. In addition to monthly income, review the unemployment rate and the proximity of quality jobs in given area. For example, if your property is close to a good, large corporate headquarters, it is reasonable to expect new employees and recent graduates will want to live close to their job.
Look for properties with unique features that distinguish the property from similar properties in the area to maximize the number of potential applicants. For example, a property in close proximity to a school or park will appeal to both singles and families, increasing the quantity of possible tenants. Furthermore, being located close to a school will also promote less transient applicants, as they will probably stay in a given area while their kids finish that portion of their education.
Finally, renting in areas with limited supply will increase your tenant pool, allowing for a more selective screening process. The limited supply will also increase demand, which is directly correlated to higher rent. Review the area’s owner-occupied percentages. Areas with a high percent will result in less single family homes for rent in your area. Areas with a large quantity of apartment complexes will saturate the market, reducing the quantity of applicants. Search Craigslist and Zillow to see the quantity of properties currently available in your target market. Watch the listings to see how quickly postings are removed to get a good idea of the demand in the area.
After you have selected a property that will attract the most qualified applicants, you will need to screen them ensure they meet your minimum standards. Create a list of minimum requirements that a tenant must meet in order to be considered. Establish a minimum credit score. I also use lenders typical debt-to-income ratio of 45%. You may also require a tenant to have a job for a certain amount of time. Once you have established your minimum standards, don’t make any exceptions to them as this could be considered discriminatory. I would even recommend stating your minimum requirements in your listing. Use a local or online screening service to perform your screening. Buildium.com provides a cost affect screening process starting at $15. Include credit score, income verification, criminal background and review of pervious landlords in your screening process. Exclude tenants with a criminal history or who have past evictions or a history of late payments. The cost of this screening is the liability of the possible tenant. Clearly indicate the screening costs as a nonrefundable fee on your listing.
After selecting a good tenant, you will want to maintain a good tenant/landlord relationship. Treat your tenant with respect and be reasonable and understanding when your tenant does have issues. For example, even though my lease may allow me to charge a late payment, I won’t exercise it as long as they notify me in advance. Remember, a happy tenant is worth more than a late payment. When raising rent, benchmark it a half point below market increases and share both your proposed increase compared to the area increase. The US Department of Housing and Urban Growth publishes statistics for most areas that include average rents. Try to fix property issues quickly and be transparent in the process. These little things will promote a two-way relationship where your tenant will want to stay for multiple years and respect your property.