Completing the purchase of a rental property might seem like the finish line when building a real estate portfolio, that is until you need to choose your tenant. Considering the many uncertainties surrounding landlords, tenants, laws, and rental properties, educating yourself both as a landlord and also educating tenants has always been essential for building a solid foundation for your rental real estate investing business. As a landlord, choosing the right tenant for your rental property can be stressful and time-consuming. However, when done right, it is rewarding for you and your family. Whether you just acquired a rental property or have an existing rental property portfolio with a long-term investment plan, learning the step-by-step guide for choosing the right tenants can save you time, stress, and money. Following a system to complete your due diligence of a property with proper analysis, you will prepare yourself to take the next steps towards finding and selecting the right tenants for your properties. These steps include:
Advertising offers a handful of opportunities to real estate investors, particularly when finding renter prospects for a rental property. Instead of limiting your search to only a few prospects, advertising creates a competitive market where more prospective tenants can bid to rent your property. In order to capture the best candidates, you would have to prepare the right ad stating the main selling features and benefits that can be enticing to prospects. In this step, an honest but eye-catching description will make prospects click on your ad but limit it to candidates who are seriously interested in your property.
2. Send and Review Completed Applications
When someone shows interest in your property, solidify their interest officially by sending them an rental application to complete in full, then upon completion, having them send it back to you for review. During their application stage, do an initial telephone pre-screening and ask questions to interested renters to get a better scene of who they are, why they want to rent this particular property, and how long they intend to rent the property. This gives you a first impression and also a better sense of who you’re dealing with as a person, not a piece of paper. Make sure to ask the same questions to make comparing potential tenants easier. Finish review of each application, and with the answers provided, you can easily weed out the unsuitable, or unqualified tenants.
3. Conduct background checks
When selecting your tenant, again, it’s important to thoroughly scrutinize their application to have an in-depth understanding of who you are dealing with. A professional background check will reveal marital status, family status, place of birth, citizenship, religious affiliation, and health status. Some background checks could go as far as knowing why a tenant left their previous rental apartment or even obtaining a recommendation from their previous landlords. Get to know how they lived in their previous home. Was the home damaged? How responsibly did they live? Note that when screening prospective tenants, the goal is to assess the suitability of a tenant. Take care not to violate or infringe on the rights of any candidate. A good way to do this is to ask a local property manager for the rules and regulations regarding background checks, criminal checks, and tenant rental history checks in that specific state and/ or county.
4. Criminal Background Check
Criminal background checks could vary depending on the gravity of the crime. Some local and states do not allow discrimination against applicants convicted of certain crimes. However, violent crimes or drug convictions do not fall under such regulations. In case of any traceable crime, it’s important to thoroughly check to know whether or not a prospect is worthy of your tenancy. As for violent crimes and drug-related convictions, the ball is in your court. Use your full discretion, not judgement.
5. Check Financial Stability
While every step might sound like the most essential in choosing the right tenant for a rental property, it is; your cash flow depends on your tenant paying their rent in full and on time monthly. Therefore, knowing the financial strength of a prospective tenant gives you a sense of direction, and it is absolutely crucial in your final decision making. The first thing to check is their credit score. You want to make sure your next tenant is one with a good credit score. A good credit score can indicate that they are financially stable and will be able to pay their rent when due.
A good resource for this is to elicit the services of a professional licensed, bonded, and/ or insured tracking services that are available in many states allowing them to act as a full service tenant screening company, conducting full background, criminal and credit checks in addition to acting as a credit reporting agency, and even a collection agency… all in one. These comprehensive reports will show you the overall picture on paper of your applicants. It also allows you to have the agency report their rental history monthly to the credit bureaus, just like a creditor. The great thing about this is if they pay their rent on time, it acts as a FREE credit builder, reporting in full and on time payments on their credit monthly. Conversely, if they do not pay their rent on time, they stand to lose more than their late fee you should be charging and collecting on rent paid late. In this case, they also will have a credit impact where their FICO score will drop with each rent payment made late. This serves as an additional security blanket over your cash flow generated by setting this expectation with clear communication and documentation up front with the prospective tenant so there are no surprises and less sleepless nights for you.
Lastly, if they continue to not pay rents, the same tenant tracking agency, if equipped to do so and inclusive of their service to you will act as a collection agency. Their job will be to collect past due rents, plus interest in addition to the late fee. These type of terms may seem harsh and aggressive, but are very simple and agreeable for tenants who truly intend to and can financially afford to pay the advertised rental rate for the property in addition to their other financial obligations each month.
In conclusion, the steps involved in selecting a good tenant can seem stressful and overwhelming. If you’ve reached this point and you’ve received several qualified candidates, the next step may just be to trust your instincts. Most people rely on licensed, local and professional property managers who may also be licensed real estate agents, brokers, to conduct the process for you, for a fee. This fee is called a Property Management Fee, generally between 8-12% for a single family residence to be professionally managed in most markets, a very inexpensive expense to pay to a professional given the load of their responsibilities to manage for you to further help secure your investment, manage and grow your portfolio. Since they are licensed in dual capacities, the nice thing is they can also serve as your agent/ broker and look for additional properties for you to purchase and manage those for you as well. However, even when you decide to hire a rental property manager, you still have an obligation to describe your expectations and clearly communicate up front to enable the manager to select the best candidates according to your investment goals and performance objectives, your return on investment (ROI).
To learn more about real estate investing, visit www.WholesalingAi.com to learn from experts actively investing about creating cashflow and reserves through active real estate to leverage into purchasing properties to create passive income.