Finding a tenant who will understand the lease agreement and take care of an investment property is a difficult thing, even for a seasoned veteran. This is why we recommend hiring professional property management to do the “dirty work”. Tenants who deal directly with an owner of a property, instead of a Realtor, can make more of a personal relationship out of the tenant/landlord agreement and may expect to be treated like family. When a tenant is dealing with a professional realtor the relationship tends to be more business like, which allows for a greater cash flow to the owner.
That being said, here are some tips for increasing the chances of finding the best tenants out there:
Pre-Qualify them on the phone:
Have in place clearly stated standards that you go over with every prospective tenant, whether by phone or in person, so that what is needed and wanted from them-and who you will allow to rent your investment- is clearly stated up front. I recommend the following:
- Never accept anyone who has a criminal history or eviction history. The reasons for these may seem obvious but there are some subtleties to take note of. A person who has an eviction record will not respond to the pressure you place on them when a rent payment is past due. A person with a criminal history will not respond to the threat of eviction as their credit is already tarnished and they may not care about another blemish added.
- The prospective tenant must show proof of income 2 to 2 1/2 times greater than the rent amount. You do not want to rent to someone who is financially strapped. Unfortunately, paying rent (or even a mortgage) can take a back seat for someone who is experiencing financial difficulties. Make sure the person renting your property can actually afford to live there. It may be tempting to rent to the person in front of you with the only criteria being “do they have cash right now in hand?” but always keep the big picture in mind.
- The prospective tenant must have decent credit. This last bullet point can have some wiggle room. If the applicants distant credit is bad but they have proven over the past two or so years that they have made payments on time then I do not worry so much. If their credit is mixed and shows that they pay their cost of living expenses but have late payments on their department store credit cards, this doesn’t concern me so much. Also, in regards to medical bills, it is so common to have applicants with unpaid medical bills I don’t even take this into account. The only word of caution I do give, and it is so prolific now it is hard to avoid, is in regard to applicants who have foreclosures on their credit. These people are a bit beaten up by the whole real estate process that they may not care too highly if they are evicted (what’s one more thing!?!) or if they break their lease (so sue me!). We have had two bad experiences with tenants in our higher income propertys that have had foreclosures on their records and have broken their leases that I am hesitant when I see someone with this on their credit report.
Really explain what is expected of them while initially showing them the property:
If I am showing a vacant unit to a prospective tenant I really make sure they understand the application and rental process. I let them know we are a fair property management service and we are there to help them but they have to help us help them. I explain what the criteria is for them to be approved (see above); I explain that there is a security deposit equal to a full months rent and the first months rent is to be paid in full at time of move in (if a tenant moves in on a day other than the first of the month we prorate the SECOND month) all due before time of move in; I explain that rent is due on the first, considered late on the second and that we do serve three day notices and evict if rent is not paid by the end of the notice. All of these will make someone who is not qualified to rent from you very uncomfortable and go on their way. It will excite the person who is a responsible tenant and rent payer.
If a tenant has spoken with you on the phone, listened to what you had to say about qualifying for the application process, has met with you at the property, liked what they saw, applied and was approved, well, you have pretty much found a pretty good tenant! This is not a fool proof formula but it has helped us to keep our eviction rate low. The next step is to take time with the tenant during the move in process. I put together a pack for them that includes a copy of their lease, move in/ move out sheet and an info sheet that gives them pertinent phone numbers such as our office hours, the local utility companies and the most important tenant rules. I spend an average of 45 minutes with the tenants during each of my move ins. I meet the tenant at the property, go over the entire lease with them, go over the tenant rules and the procedure for paying rent about 3 times before my time with them is over. I really want the tenant to fully understand what is expected from their tenancy. I communicate clearly that we are there to help and we want this to be their home. I also explain that we are professional property managers, not rent collectors, and that we get cranky if we have to chase them down for their rent payments. I let them ask questions and investigate their knew home until they are comfortable and then I hand over their keys. This helps later on in a disagreement if they say “well, you never told me that….”, I can say “Well, don’t you remember during your move in when we talked about…” They know that I have spent time with them and that it wasn’t rushed or glossed over.
Serve your 3 day notices!
I cannot stress enough the importance of the 3 day notice and sticking to the time frame laid out in the notice. In our leases rents are due on the 1st of every month and considered late on the 2nd of every month. For tenants who have not paid their rent by the 5th they are served with a 3 day notice on the 6th of EVERY month-no exceptions. If they haven’t paid by the end of the three day notice they are evicted. Period. This is communicated to them at the showing; this is communicated to them at the move in. You will find that a tenant will rarely not pay by the end of the 3 day notice. Less than 10% of our renters are served with a 3 day notice.
You are running a business, and you need renters and their rent payments as income. However, never forget that it is you who are providing the service and never ever forget that the renter is a real person and has a real life with potentially real problems. If a very good tenant has trouble one month STILL SERVE A 3 DAY NOTICE, but let them know that a later rent payment may be ok if they can give you an exact date it will be paid by. Don’t be so rigid that a tenant will see you as cold and unfeeling. Talk to them and find out what is really going on. Keep it business like and professional but realize it is an actual human being you are interacting with, not a machine.
Reward good rent payers:
If a tenant is a good rent payer and it is time to renew their lease, do not raise their rent, or raise it only minimally, even if the market would warrant a much larger rent increase. This creates a good relationship with good rent payers and they will re-rent from you and recommend your vacant units to friends and family.
These are just a few examples of how to raise your chances of successful investment property ownership through thoughtful and fully realized tenant placement.
Of course, any professional property manager that you hire should have the same guidelines in effect as well.
Some different types of tenants you may encounter:
- The angry tenant: The angry tenant is usually a young or immature tenant who has something to hide whether it be damage to the property or they are planning on breaking their lease. Try to get to the root of the problem and find out what is really going on. Address their problems with a level head and make sure you address the problems they are bringing up, no matter how trivial. Make sure you document everything with the angry tenant and make sure they aren’t legitimally angry at you for poor service!
- The young tenant: This will be a tenant who has a parent accompany them to the showing or move in and this will probably be their first apartment. I take it really slow with them, really make sure that they understand the lease, and understand about evictions and how an eviction can really effect their credit down the line. The young tenant is likely to become an angry tenant.
- The know it all tenant: This is the tenant who, well, thinks they know it all! They will try to tell you how to do your job, or how you are doing your job incorrectly. They will explain why it is ok that they are withholding their rent for whatever reason and why it is ok they did not give their 30 day notice prior to moving out. These tenants can be difficult to communicate with as they really won’t listen to what you are saying. I recommend using the local apartment association or real estate lawyer to help with these tenants.
- The “been there too long” tenant: This is the tenant you inherit in the purchase of the property and who has either seen many other owners or many other professional management teams. They will act as if they know the property better than you (and they may in fact do!) and that you should be taking their advice. I recommend listening to them and treating them with respect and then follow your own heart and do what you need to do to the property you own.
- The very old tenant: Occaisionally, you will have a tenant so old and ill in health that they become hospitalized or leave without notice due to being placed in a nursing home. Do not fight the legal aspect of the lease with these types of tenants; just let them go and spend your energy finding a new renter.
Keep in mind that a property in good shape with well taken care of tenants who have been thoroughly pre-qualified should basically run itself. A good working relationship with a tenant can result in money coming in, your investment being taken care of and low vacancy rates. Keeping up strict standards with a human touch can make all the difference in investment properties as can a professional property management team.
Jennifer Fehr is the co-owner of Suncoast4Rent with her husband Tom Fehr. Jennifer is a Florida State Real Estate Sales person and works through Stonebridge Real Estate Co Inc in Clearwater, Fl (Pinellas County) to bring the personal touch to all your Real Estate needs, be it professional residential property management, consultation and sales.
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