January 27, 2010

How to Find 'Good' Renters

The other day when I wrote about one of our rentals I got a comment from DebtMaven asking exactly how you go about finding 'good' renters.   Thats actually a pretty large topic so I figured the answer warranted a post on its own.

What is a 'good' renter?
To me a 'good' renter is someone who pays their rent on time every month, doesn't damage the property, is lawful, obeys the basic rules of the property and is generally courteous and conscientious.  Now I don't expect anyone to be a 'perfect' renter and I wasn't one myself.  But I would like to see people paying the rent on time and not damaging things or breaking rules.    Every landlord should try to get tenants who pay the rent and don't damage the property, it only makes good financial sense.

Know the laws that apply to landlord and tenants in the US, your state and city.   If you don't know the laws in advance than you can easily make a mistake and it can bite you in the end.  This bit isn't so much about finding good tenants but knowing what you can and can't do when going about screening tenants and how to do it properly.  Before you rent a property make sure you know the laws.  It is important that you do your tenant selection legally and an important part of that is not discriminating as defined by the applicable laws.   The exact laws and rules vary from state to state and some cities have extra laws so its important to do the research for your specific region.

Make your rental appealing.   Good renters don't want to rent slums.   To attract good renters you should keep your property in good shape.  You want to make sure it looks good and everything is in working order.   If a good renter walks into a rental and sees that you haven't mowed the grass for 2 weeks and that the a window is broken then they will expect that you won't do a good job maintaining the property or repairing damage.

I like to set the rent at the lower end of the market.   This a personal preference and I'm sure many landlords would disagree on me about this one.   I think lower rents help in a few ways.   With a more affordable rental you get more applicants and it allows you to be more selective.  It also helps you keep renters in your units longer.   If you rents are priced higher then you get fewer qualified applicants to choose from and more turnover and vacancies.  Of course I wouldn't set the rent too low either or you're just throwing away money.

Prepare a detailed lease document in advance and require a lease term.  When you do start showing the rental and actually get the ball rolling on applications you'll need to have a good lease document.   The lease should have lots of rules that help protect you as the landlord.   Think about any problems that a tenant might cause and see if you can avoid that with rules in your lease.   You should make sure that your lease is all legal so thats another reason to make sure you know the applicable laws before hand.  I would generally prefer to require a 6 or 12 month lease term.   If you do not have a lease and rent just month to month then you will attract more transient tenants and people who may leave a at moments notice.  

Advertise the property to a wide audience.    I like to use Craiglist since it is free and seems to reach plenty of prospective renters.   Your ad should help you target the right renters.  Explain the nature of your property and list your key rules.  Indicate that a background check is required and a screening fee will be payable by the applicant.   Good tenants want you to be picky about who you rent to since that will ensure they have good neighbors and they won't have a problem passing screening.  Bad tenants will be turned off by rules they don't want to follow or background checks they know they won't pass. When I advertise a rental I like to give the specific street address in the ad so that tenants can drive by and take a look themselves.  In some smaller cities Craigslist may not be as effective.   You may also want to consider paying to advertize in a local newspaper classified section or finding other free listing services.  

Prescreen prospective tenants on the phone.   The screening should have a few basic facts about their situation and employment.   I would ask :  Where do you work and how long have you been there?   Have you been evicted or declared bankruptcy?  Also ask how many people would be living in the unit.  I would also explain basic rules to the tenants that you may have : No pets and no smoking.  I'd also make sure to point out that there is a background/credit check.   Simply telling people there is a background check will weed out some undesirable tenants.   I'd also ask them if they've driven by the apartment and if they haven't suggest they do so.  That will filter out people who dislike the location or appearance of the unit.

If interested applicants pass your prescreening then schedule to show them the property.   I prefer to schedule a few showings at the same day and time.   If I have 3-4 people call over a few days and seem to be potentially good tenants then I'll ask them all to come meet me at the rental at 2pm on Saturday.  That way I'm only making one trip and if a single tenant is a no-show then I'm not wasting trips.

Act professionally and don't be a pushover.   You are running a business and you should be professional in the way you run your business.   Remember that good tenants are looking for a good landlord as much as you're looking for a good tenant.    If you act like you don't know what you're doing then this will be seen as a sign of an inexperienced or incapable landlord which is a turn off for good renters and potentially appealing for bad renters.  If you send negative signals to tenants then you can scare away your good renters.   You also don't want to give a bad tenant the idea that all your rules are flexible or that being late with rent would ever be acceptable.

Don't let emotions guide you.   Maybe you have soft spot for cats and your potential renter is a cat lover, so you decide you like this person.   That kind of thinking doesn't make for good tenant screening.   Remember you're running a business and your emotions and 'gut feelings' shouldn't be guiding your choices.

Look for tenants with good steady income and no history of financial problems.   Ask for proof of employment and income and do a background / credit check.   Personally I prefer to only run the background / credit check and do all the paper work on people who I'm pretty serious about potentially renting to.  If someone doesn't make enough money to afford the rent then you shouldn't rent to them.  That may seem straight forward but tenants may try and convince you how they can manage it.  If someone has a good solid employment history then they are going to be a better bet as a renter.   An eviction or bankruptcy on someones record is a clear sign that they have had problems in the past and are much more likely to have problems in the future.     

'rich' doesn't mean good tenant.  Just because someone has a high income doesn't mean they'll be a great tenant.   And just because someone has a moderate to low income doesn't mean they'll be a bad tenant.  You want a tenant that can both afford the rent and someone who has demonstrated history of paying rent on time and acting as a good tenant in previous rentals.

Ask for and check references.   You should ask for references from previous landlords and then call those landlords to ask about the tenants.   Look for gaps in rental history and ask about any such gaps.  They may be omitting a reference since they know they had problems somewhere.

Don't be afraid to wait for a good tenant.   I'd rather wait a couple more weeks to weed through some applications to find a good renter than rent it to the first marginally acceptable person that shows up.   That good tenant will last longer in the end.

Avoid renting to friends or relatives.   It might seem like a perfect solution to rent your property to a friend or relative.   While your friends and relatives may be good tenants I would not rent to them to avoid inevitable complications that will arise.  It might work out great in most situations but eventually your friend or relative will break the rules or be short on their rent.  Since they are your friend or relative they will likely expect special treatment and you'll probably feel obligated to be more lenient.

Its Impossible to be perfect.   No matter what you do and how careful you are in screening you will eventually end up with a bad apple.   Someone who looks like an ideal tenant may turn out bad.  They might be extremely good at lying or circumstances in their lives may change for the worse.  The goal is to screen out as many bad tenants as possible and aim getting as many good tenants as you can.  If your diligent and careful in your tenant screening processes then you should end up with a majority of great tenants.

This covers all the general tips and strategies that I can think of for screening for good tenants.   I'm sure there are more things that can be done. 

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