Choosing the right tenant seems like an easy task. But, not only can it be quite difficult, it is possibly the most important decision you will make in property management. Especially if you consider all the new laws preventing property owners from removing unwanted tenants. When you are choosing a tenant, you have to consider that they can be your tenant for 10 years, so choose wisely.
The first and most important indication of a good tenant is their credit. Running a credit check is the first thing you should do when judging a new perspective tenant and it should be your main source of information when making a decision. It gives you a very good look into their ability to pay bills on time and their responsibility. And if they have good credit, it also means they have something to lose and would not jeopardize their credit worthiness. When we look at credit, we are not highly concerned with the score, we are concerned about late payments, collections and the amount the perspective tenant would be paying in monthly bills. The later comes into affect when you have a tenant grossing a little above the 3 times rent that we require. You will find that people are willing to pay more than they can afford for their rental. You, as the property owner, have to be the one to do that analysis to make sure they can afford to live there.
When you pull a credit report and find collections or late payments, what do you do? If you still want to rent to them despite some credit issues, you need to ask yourself a few questions. The first question, is whether they were honest about the issues to begin with. Second, is there documentable evidence of the explanation they are giving you for the credit issues. Lastly, does their explanation make sense.
Another important step is the interview. We always make sure people come down to meet us. By speaking with them for only a few minutes you can get an initial look into their character. You want to rent to people who are nice, honest people and sometimes a 15 minute conversation can provide great insight into your potential tenant. There are a few red flags I will go through right now that come up often in our interview. Number one is they seem to want to rush through the application process. Normal individuals understand there is an application process which they have to go through. If they are rushing this process, it usually mean they are trying to hide something. A second indicator, which usually coincides with the first one, is do they use the phrase “I’ve got the money right now”, or some version of this. Having money is not the reason you want to rent to these people and generally people understand that as well. When they are stating it, it usually means there is another issue. There are multiple other reason to scrutinize an application which include incomplete applications, elaborate explanations of work, rental or credit issues.
We believe these are the two most important things you can do when looking for a new tenant but there is one more important check you can make. Tenant references is something that most landlords do and put a lot of stock in this. We do not put a lot of stock in this for two reasons. Previous landlords will often give good references to get rid of a bad tenant. Unfortunately, this happens and people want to get rid of their problems even if they are dumping it on another person. 2nd, you are relying on a third party who might not have or provide you with accurate information.
Make sure you find a good tenant because they can make property management a whole lot easier.