Your flip house is finally renovated: Check.
The yard is impeccable: Check.
All the furniture is in place: Check.
You’ve got your newest tenant lined up: Not quite yet.
In many situations, buying an income property and getting it renter ready is the easy part. Choosing the right tenant? That’s the hard part.
Research shows individual investors make up nearly three-quarters of today’s rental properties. So, if it’s of any consolation to you, you’re not the only one trying to figure out this whole tenant selection thing.
Let’s get started!
1. How to Find Good Tenants: Look for a Positive Reason for Moving
Asking why a prospective tenant is moving is certainly a great conversation starter. But even more than that, it’s a handy learning tool. After all, a prospective tenant’s response can be quite revealing.
For instance, it’s a bad sign if they say they’re moving because they don’t like their landlord.
The answers you want to hear instead are, for example, “I need more room” or “I’m switching jobs.”
2. Solid References
When it comes to references, you want both landlord references and employment references. Here’s why.
An employment reference verifies that a prospective renter currently has a job and is, therefore, generating the income needed to pay the rent. Meanwhile, a landlord reference can tell you a lot about whether your prospective tenant is worth working with.
Try to contact both the person’s current landlord and their previous landlord. If the person’s current landlord can’t wait to bid adieu to them, they might not be totally honest about their experiences with the tenant. But a previous landlord has virtually nothing to lose by being upfront with you regarding a subpar tenant.
Here are a few questions you should ask the landlord references either in person or by phone:
- Did the tenant pay their rent on time?
- How clean were they?
- Did the tenant host loud parties?
- Did you part amicably with the tenant?
- Do they owe you outstanding debt?
- Did they damage your rental unit in any way?
- Did they cause major issues or disrupt their neighbors while renting your property?
- Did they get their security deposit back at the move-out time?
Also, ask the references if they’d be comfortable with renting their properties to your prospective tenant again down the road.
3. A Positive Background and Credit Check
Let’s say you tell a prospective client you’re going to run a background check on them and they freak out. You should probably move on to the next applicant.
Your nervous applicant might not necessarily have anything to conceal. But if they don’t give you permission to run a background check, you shouldn’t give them the keys to your property. Plain and simple.
4. A Reasonable Monthly Income
Ideally, you want a tenant whose income each month is about 2.5-3 times your monthly rent figure.
It’s just as important to find a tenant who has a reliable, steady income source. As we mentioned earlier, that’s why contacting an employment reference is always a good idea.
Note, though, that some employers won’t actually give out their employees’ salary details, as they consider this to be private information. In this situation, you could ask a potential tenant to provide you with a fairly recent paystub, which can easily tell you how much they earn.
This may surprise you, but what you consider to be affordable rent may be totally different from what a prospective tenant views as affordable. That’s why it’s so critical that you understand your potential tenant’s current financial situation before you give them a lease to sign.
5. The Right Living Situation
If you want your property to remain quiet and well maintained, you’d probably be perturbed to find out 10 college kids are staying there each night.
So, be sure to ask your possible tenant if they plan to get a roommate or multiple roommates in the future.
Also, it wouldn’t hurt to ask the applicant what their typical day is like. Do you they work during odd hours, like during the night shift?
Another wise question to ask is if they smoke. If so, do they smoke outside or inside? You could also ask the applicant if they have any relatives or friends who often spend the night with them.
If you receive the answers you want, then you’ll likely end up with a tenant whose living situation fits your desires and expectations.
6. No History of Eviction
One of the most important questions to ask a prospective tenant is, “Has a landlord ever evicted you?”
As we mentioned before, you can find out the answer from their landlord reference. But asking the potential tenant directly will tell you a lot about their character: Can they be truly honest with you?
If you learn the applicant has indeed been evicted, some extenuating circumstances may absolve them. But if you want a relatively hassle-free landlord experience, it’s best that you move on from any applicant who has an eviction in their history.
7. No Pets (That is, if You Don’t Want Them)
If you’ve got a no-animals policy, make this clear right away.
Meanwhile, if you’re okay with having pets as long as a tenant gives you a deposit, get this in writing. Also, make it clear how many pets you will allow.
Keep in mind, though, you can never exclude a service dog. These animals are considered to be working animals, not pets.
8. The Right Move-In Dates
Be sure the move-in dates that work for you will also work for your potential tenant. Otherwise, the tenant might arrive with all their furniture on the exact same day the carpets are getting cleaned.
In addition, if the tenant is vague about their move-in date, they may be just as vague about when they pay their rent or a future move-out date. So, be careful. You want a tenant who will be precise, as this translates as being responsible.
9. No Subletting (If You Don’t Want This to Happen)
If your policy is not to allow subletting in your rental home, spell this out in writing early on.
Your policy on subletting could apply not only to long-term subletting but also to the type of short-term renting done with VRBO or Airbnb.
10. Ability to Pay One Month’s Rent and Security Deposit Upfront
Many landlords require new tenants to pay a month’s rent plus a security deposit upfront. If your potential tenant can do this for you, then you’ve likely got a keeper.
If the tenant has a problem with forking over the funds, then this might be a warning sign of issues to come when the rent is due each month.
Also, make sure the deposit you collect is a substantial one – one which will actually cover any damages you incur if your tenant ends up being a bad one.
As a general rule of thumb, try to make the deposit larger than the monthly rent amount. For instance, if you charge $900 per month for rent, make the deposit $1,100.
If you make the deposit amount the same as the rent amount, the tenant might think the deposit amount will cover their last month’s rent, which is not the case.
Important Considerations
When you’re asking a potential tenant for the above information, be sure to talk to the applicant in person. After all, seeing them in person can further give you an idea about whether they’d be a good fit for your property.
For instance, you can get a feel for how clean and kept they are by observing their attire and the vehicle they drive.
Be fair and clear when you’re screening a tenant. And above all else, follow your intuition. How they treat themselves, their vehicle, and even you are a good clue about how they’ll treat your property.
How We Can Help
We understand how critical it is to find the right tenant for your income property. After all, you’ve poured money, time and energy into the house. You don’t want to pay a high price over the term of a tenant’s lease simply because they were a bad choice.
That’s why we offer a wide range of tips and advice for landlords and property managers who are looking for tenants. With our help, you can easily find out how to find good tenants and thus enjoy more income with fewer headaches over the long haul.
Take a peek here to find out more about how to make your income property work for you in the months and years ahead.
