The quality of tenants occupying your rental property is extremely important…
Get it right… and they will put cash in your pockets month after month while growing your net worth. Get it wrong… and they’ll seriously harm your cash flow. It’s worth getting it right.
Now, before we jump into some tips for this, keep in mind that there are real advantages to having a good property management company handle the nuts and bolts of tenant screening for you. However, you may not be ready for that yet. And even if you are, it’s good to know the kinds of things they’re helping you take care of!
So, if you need to screen tenants personally, here are 5 tips to help you do it more effectively…
Identify Your Ideal Tenant ‒And Offer Them What They Want
As I’ve covered in this post, you can avoid most tenant and vacancy problems by buying the right kind of properties in the right regions and neighborhoods. Those locations and price points will attract the kind of renters you’re looking for, while appealing much less to the ones you don’t want to deal with.
It’s kind of like fishing…
If you want to catch a Blue Marlin, you need to go where they live and feed. The Atlantic Ocean would be a good place to start. But if you go looking for your Marlin in a fresh-water lake in Tennessee… well, they just don’t live there. So whatever you catch, you’ll be disappointed.
That’s how tenants are. If you buy a house in a “war zone” neighborhood, the kind that repels the tenants you’re seeking… you won’t get the tenants you’re after! But you will get somebody ‒ and it won’t be a good match.
Remember That You’re Not Running a Charity
For some folks, this isn’t going to be a problem. But a lot of newbie real estate investors have a soft spot for people going through rough times. And you will likely come across some tough luck cases sooner or later, no matter how good you are at attracting high-quality tenants.
Here’s the thing: you aren’t running a charity when it comes to your rental properties. These properties are a business. And the numbers don’t lie.
If the numbers tell you that a prospective tenant doesn’t make enough money to pay the deposit… has a history of evictions… jumps from job to job several times a year… and/or has a credit rating that makes your jaw hit the floor when you see it…
They aren’t in a position to increase your net worth. They’re not ready to rent from you. They need some form of intervention or charity help.
And that’s OK, as far as it goes. It’s just not your problem as an investor. And if you do want to help them, you need to do that outside of your “landlord” role.
Use a Checklist
Remember the movie “Apollo 13”? One interesting thing is how they’re always creating and using checklists to get from the Earth, to the Moon, and back. They have checklists for ignition, launch, testing different systems… everything.
That’s actually how the Apollo astronauts did it. And it’s how fighter pilots do it today. In fact, in just about any high-performance situation, people use checklists to insure success. Because in those settings, you can’t afford to skip any vital steps, and it’s too risky to trust your memory. (We’re so prone to distractions and forgetfulness.) That’s why checklists are so powerful.
With a checklist, you create a process once ‒ it requires study, thought, and some effort. But once it’s created, it’s done. From then on, it does the thinking for you. You don’t have to waste valuable brain power or concentration trying to figure out what to do or remember the next step. It’s all in the checklist.
So when you gather your resources and put together your system for screening tenants (whether you use someone else’s approach or cobble your own together from doing Internet research), make sure to put it together in checklist form. It’s so old-school ‒ and so effective.
Maintain Control of the Process
It really is about control. You maintaining control over your cash flow, your emotions, and the kind of people who will be living in your rental property. You don’t ever want to surrender control over these things.
That’s why you have a process in place. And that process will seek to determine things like these for your prospective renters:
Income levelsJob status and history (including actually speaking with current employers when possible)Rental history (including landlord references and verification)Criminal background checkCredit worthiness
A red flag in any one of these areas is cause for concern. Why? Because it indicates the prospective tenant may not be able to follow through on their commitment. Sure, they might work out. But it’s better to go with tried and true “rental success” indicators.
But there’s more. Having tenants “jump through the hoops” makes it clear who’s in control psychologically.
It’s like when you wait to see a medical specialist. You don’t just waltz through the door without an appointment and demand to see the doctor. You sign in. You take a seat. You fill out paperwork (which tells the doctor important information ‒ but it also makes it clear who’s in control). And you only enter the doctor’s consulting room when the doc is ready to see you.
It’s powerful psychology, actually. So put it to work for you. Since it’s your property, you set the pace, not the tenants. Follow your process, keep everything in writing, and never relinquish control of any part of the process.
It’s All About Cash Flow
Pretty obvious, right? But this whole topic of screening tenants gets turned into an emotional issue for too many people. And it shouldn’t. Because when all is said and done, tenant-related issues are simply cash flow issues. It’s about the money.
In other words, the primary reason to screen tenants is not to avoid stress. It’s not to avoid possible legal issues. It’s not to avoid falling into a charity mentality. Those are all benefits of screening your tenants properly, of course. But they’re not primary reasons for doing it.
The primary reason to screen your tenants is to insure optimal, consistent cash flow.
Think about it… A good tenant who stays in place for two years is better than one who stays in place for one. And a solid tenant who stays in place for four or five years is even better! No vacancies, no problems… and no interruptions to your cash flow.
And when a tenant does have to leave, you want the kind who will notify you well in advance ‒ giving you plenty of time to find a replacement so you can minimize the vacancy time. Again, it’s a cash flow issue.
The better you are at working with only the best tenants, financially speaking, for your property, the more you’ll be able to leverage their income… to pay you cash and increase your next worth. And that’s the whole point of the real estate investment game.
Are you eager to learn more about how to invest in real estate the right way? Schedule your free appointment here or give us a call at (801) 990-5109 to build your personalized Wealth Plan. We’ll be happy to help you leverage the power of real estate investing to build lasting wealth and success.
