Tenants play an incredibly important role in your Real Estate Investing business. Not only can poor tenants cause you headache, but they can cost you money. You have probably heard some horror stories of inherited tenants. Not everyone has a diligent screening process, and some people do not treat being a landlord as a business, but just a mortgage helper in their primary residence. They slap just anyone into their unit, sometimes below market rent, just because they want the quick and easy income. Personally, I would rather do extra work up front, and if necessary, leave the unit vacant for the time it takes to find a good solid tenant. For the most part, the more work you do up front, the less work you should be doing down the road. That’s not to say there won’t be any issues. There’s always something that comes up. But the following tips help to mitigate that.
1. Create a minimum guidelines checklist right off the bat
Before you even list your place for rent, I would recommend putting together a written sheet outlining the minimum requirements for a tenant to meet in a number of categories. Not only does this help avoid discrimination claims, but it also provides clarity, and saves time for yourself and prospective tenants. Creating a check list means that you leave emotion out of the equation. Here is an example of what one of our last ones looked like:
- Minimum credit score of 650
- No previous evictions
- Able to provide 2 references (1-2 landlords and employer)
- Income of at least double the rent payment (including utilities)
A note on the income – a number of our tenants are late teens or early twenties, and do not make a lot of money. We make sure they can service the rent and other bills, but sometimes the regular rule of an income 3x the rent just isn’t realistic. Part of my choice to do it that way first stemmed from the fact that in my early 20’s I was renting a place for $1500 + internet & electricity while making less than $3000 per month. I never missed a payment, never carried debt, or struggled to pay my bills. Point being, there is more to take into consideration than purely income. Someone could make a lot of money, but have zero intention of paying their rent. Or they make a lot of money but spend far more than they make. This is where credit comes in as well as previous landlord references. Do they show any indication of patterns of missing payments? Have they paid their rent in full and on time in the past? These are important considerations. Anyone who does not meet your minimum requirements on the phone screening call doesn’t get scheduled for a showing.
2. Scan their social media.
Social media can tell a whole story, good or bad. Check an applicant’s Facebook, Instagram, search them on Google, check out their LinkedIn, etc. Look at who they’re friends with, what kind of content they post, the kind of photos they are tagged in, and pages they like. Do they constantly have photos of them drinking or partying? Red Flag. Do they have a photo of them and 15 cats hanging out together on the couch? Red Flag. Do they have a man/woman that appears to be dating them in all their photos but the application only lists one person? Find out the status on that. Make sure they aren’t going to be secretly moving in.
A couple of stories we have on the importance of social media: On our first rental property, we had a couple of showings scheduled. We happened to check out one of the applicants on social media, and just an hour prior, she had posted a plea for help coming up with a damage deposit because she couldn’t come up with one. Another applicant one time messaged us, and we checked out her Facebook only to see that her last 3 posts were bashing her landlord and photos of the disgusting place she lives and complaints that she was being evicted. You can learn a lot from social media. Do they have pets they are not telling you about? Do they secretly smoke? The list goes on.
3. Look at what they drive and where they currently live
I am not trying to say that you should judge someone on what they drive. Not everyone can afford or wants to pay for a brand-new fancy car. In fact, in many situations, that’s better too because it could mean that they do not have a $1,200 monthly car payment. I’m more so talking about checking out the state of their car. Do they treat it poorly? That could be a suggestion of the way they keep their home. I also like to do a google maps search of their current property to see what kind of place it is. If it’s within reasonable driving distance, it’s sometimes a good idea to do a quick drive by too. Is there a bunch of trash and broken-down cars hanging out in the front yard? Well, that will be what your property looks like when they move in too.
4. Get the applicant references to fill in the blanks when you call
I like to try to trip up the references to ensure they are real. Sometimes applicants will put fake landlords on their application that are really their friends or family members. To avoid this, I will get the “landlord” to provide me with the address of the current rental property. I say “Forgive me, I don’t have the application in front of me, I just want to confirm the address that ___ rents.” Chances are, if it’s a friend, they won’t know the exact address at least off hand. I go even further and ask them how long the applicant has lived at that property. I don’t say so ___ has lived in your property for 2 years? I say: when did ____ move in? There’s lots of ways you can frame the question that will give you comfort that it is their legitimate landlord you’re talking to. Another one I’ve heard of people doing that I have not done myself is to randomly call the number beforehand inquiring about properties they have for rent. If they’re confused, that might be something to be suspicious of.
Much like contractors, tenants can make or break your real estate investing business. The goal is to have the least amount of contact possible through the term of their lease. In no way does that mean to neglect to maintain the property, but if tenants are happy and paying on time, you will probably talk to one another less. These tips are just a few ways to secure quality tenants. But also keep in mind, nice places attract good tenants, weird properties attract weird tenants. You can’t provide a dumpster of a house and expect to vet excellent tenants for a premium.