You’ve invested in a great property. You are ready to get people in there and start making money on your investment. Long vacancies or bad tenants can spell disaster for your cash flow, so you need to find good tenants who are reliable, employed, and who can pay the rent regularly while taking care of the property. Selecting the best tenants is the final piece of your overall investment strategy.
How do you go about finding these great occupants? Like everything in business, you need to do your research and come up with a viable business plan. The first thing you should do is create a list of minimum requirements that you are looking for in a tenant. This means deciding what kind of credit score, salary requirements, rental history, and the like to ask for upfront.
Be sure you don’t add illegal criteria to your selection choice – there are federal and state laws to be aware of. Once you have your list made, then you can create an advertisement based on this information. You are looking for someone who has a decent credit score, a salary at least three times the rent you are charging, and a decent rental history – the longer they have stayed at a property, the better. These are all the minimum qualifications you should look for in a potential tenant.
Once you have decided on your minimum requirements, write an ad that reflects all these points. Be sure to emphasize that a credit check and a background check will be run on all applicants – this may be enough to ward off those less than desirable tenants. Invest in a quality tenant screening service that includes everything you need to know: credit check, background check, employment record, nationwide criminal report, multi-state evictions check, court records, bankruptcy reports, foreclosure check, collections, and reference checks.
If you don’t do a screening of every potential tenant, then you open yourself up to the cost of bad tenants and even the possibility of an expensive and lengthy eviction process. You need to operate as an efficient manager for your property for it to work like a business for you. Take the time to do a proper screening of every applicant. And know what your state’s laws are regarding the eviction process.
Every state will have its own requirements and process, so educate yourself on the subject before getting to that point. In general, you can make a case for eviction if you have documented proof that your tenant has done any of the following: they have failed to pay rent on time (or at all); they have violated the written terms of the lease; they have caused damage to the property; they have broken any occupancy, noise, or health ordinances; or they have caused health or safety hazards in the property.
Another great investment strategy for you to consider is to always try and calculate any unexpected expenses that will arise while you are managing a property. Finding great tenants is just the beginning; your property will also have many unseen costs, such as possible liens, state and/or property taxes, regular maintenance expenses such as replacing windows or paying a plumber to fix the plumbing.
Sometimes natural disasters happen, and although insurance should cover the cost of repair or replacement, you need to make sure you have the right kind of coverage (check for flood plains, hailstorm/hurricane claims, and any other catastrophic weather-related history if you can). Even if you have an insurance check to cover the cost, it will not cover the cost of your time and attention taking care of the repairs or maintenance – these also must be factored into the bottom line.
If your property does sit empty while you are trying to find good tenants, this of course equates to lost revenue. Part of your business plan should be a contingency aspect for the times when the property is not occupied. Having a plan of action will help fill in the gaps without panicking or doing something rash, like renting to the first applicants without doing the appropriate credit and background checks. Investing in real estate is an expensive venture. Make sure you have the funds available to accommodate any scenario, even the one where you cover the mortgage yourself while trying to find an appropriate tenant.
When you DO find great tenants for your property, be sure and plan for ways to keep them happy and content so they will want to stay for the long haul. Make the process of paying rent or requesting maintenance easy and doable – perhaps set up an online portal for such tasks. You can also consider not raising the rent every time their contract renews – having and keeping good reliable tenants is a great way to save money as well as keep the property occupied for a lengthy period of time.
Now that you have the final piece to your investment strategy, it’s time to go and fill that vacancy!
