Are You Still Struggling to find Great Tenants? Struggle No More!
As an owner/manager of 25 units, I am always on the hunt for quality tenants. In 2014 alone, I have found and approved ten tenants for my units already.
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All with minimal or no vacancy. It is about ten more than I like, but sometimes people have to move. It is well above my average of about six. Four were tenants I approved without ever seeing them. My former tenants have gone on to buy homes, get job transfers, move into larger places, go to graduate or med school, move closer to their new job across town, and other legitimate reasons.
Only two of my tenants that left were what I considered weak links, and I was glad to see them go. When a tenant moves a few blocks away, to a similar place, it was likely a mistake on your part that caused it. I am not counting my long-term Section 8 tenant that I just got rid of, as that is a story in and of itself…
Always Get at Least Average Tenants
My new replacement tenants were all generally a step above the ones that left.
Related: Tenant Screening: The Ultimate Guide
They all had solid incomes ($80K), solid credit scores (700+) and solid careers, not jobs. Although I do not count much on landlord referrals, they had great landlord references or owned a home previously.
I am not renting penthouse suites; I am renting a smaller three bedroom apartment, some with two baths, some with laundry in the unit, some with central air. All have garages, and zero of them have a workout room, elevator, swimming pool, or an on-site caretaker. There are very few building amenities. They are not new; they were built in 1984/85. Many investors would consider these class C (or worse) buildings based solely on the building age and amenities. Yet, I can get solid tenants call A tenants that most landlords would (financially) drool over.
My apartments are renting for an average of just over $1,000 per month. My tenant’s average income is somewhere in excess of $6,000 per month and the average income in our area is around $75K at the household level.
So, I am getting a very average renter, or better, in terms of household income for my area. With an income about six times my rent amount, rent at the end of the month comes easy for them. I know it still sucks to pay rent, and I do not like to pay my mortgage either (or taxes, utilities, HOA dues, maintenance, etc.).
Keep Apartment Turnover Costs Minimal
My costs to turn a unit with solid tenants in place are minimal.
Other than some minor wear and tear items, there is little to do. Some of my tenants hire professional cleaners. Some hire the carpet cleaners. Some hire both. Many are even doing their own touchup paint where they have scuffed the walls. Great tenants make your life easy.
I rented all of these apartments with minimal vacancies. Other than a brief period of time while I was remodeling one unit; and a two week stint between my weak link tenants and their replacements, the rest of them were re-rented without any vacancy. That’s ten turnovers, less than a month of vacancy. I know landlords that struggle to find tenants in today’s landlord market. If you are struggling to find good tenants in today’s rental market, please look in the mirror to identify your landlord problem.
I was able to get an additional $320 per month with the new tenants, as I refreshed the apartment and raised rent to what I consider market rent. That is almost an additional $4K per year, that goes right to my (and the IRS’s) bottom line. It is an additional $4K I can use for maintenance or improvements to perhaps even get higher rents.
Cookie Cutter Approach to Getting Great Tenants
So, if you want great tenants, you have to follow some simple rules.
Know what a great tenant looks like on paper. Know what the average incomes are for your area. You will want to set that number as your average for the people in your rental(s). If you only have one rental, never go below average. If you have several rentals, use that as a median. And never go much below average regardless.
Know what the average credit score is for your area. The national average credit score for a renter is about 650. Go much below 625 and you are going to get into trouble. Require this score for all tenants in the unit, regardless if they are the financially responsible tenant or not. You will eliminate a lot of personal behavior headaches if you do.
Match Your Product to Your Customer. Have a property that matches your tenants. You are not going to get a Wall Street banker to rent a slumlord apartment. Make sure you have the proper maintenance performed and have a property worthy of your expected tenants. If you have a downtrodden apartment, I look forward to hearing great tenant horror stories from you in the future. If you would not live there yourself, why would a solid tenant want to?
Start Showing Early. Start showing your apartment six to eight weeks out. If you have decent tenants in your units, they will help you rent. Once I see some interest in the prospective tenant, I try to introduce the incoming tenants to others in the building that happen to be home. I also warn the new tenant that I will be knocking on their door for the same reason with the next new tenant. People want to know their neighbors. They do not want to move into a place with a drug dealer next door.
Use Your Tenants Help. Unlike many landlords, I like it when my tenants are home for the showing. Single females that are looking at a new apartment like to see other single females living there. Families with kids like to see other families with kids. They can ask about safety, and other issues that are a concern with them. While I have the answer to many of the tenant’s questions, I (and the tenants) know have a biased opinion. New tenants ask about utilities, crime, where the dog parks are, why the current tenant is moving, the management of the property, whether I fix things, etc. No one can give you a better recommendation that a tenant that is already there.
Know the proper price, or be prepared to adjust mid-stream. I try to have the best value in my market. If I show a property to two or three ‘qualified’ tenants, and they do not apply, I adjust my price. I start thinking about it after the first one. I have no way of actually knowing if they are qualified if they do not apply, but if a person says they are a school teacher, or other professional job, I assume they can pass a background check. If I ask what their income and credit scores are, I assume they are telling the truth. I always ask these questions in the ‘interview’ at the showing. If they want to know my background, I am not afraid to share it either.
If you overpaid for your rental, it is not the incoming tenants fault. Do not attempt to get more than a qualified tenant will pay.
Advertise On Line. Let’s face it; online marketing is the new age of advertising, and it’s almost old age. Everyone has internet access, at least anyone you want to rent to does. I do not want a person that is living in the Stone Age. I need people who can text, receive an email, and pay rent automatically. I take all forms of payment, including cash, but I do not like to play phone tag to get it. And certainly not with a tenant that changes their phone number frequently. A quick text and I can swing by and pick the rent up. Other than that, I expect my rents to be in the rent box, mailed, or sent electronically. I expect all of it on time.
Have Set Criteria. Know what criteria, in terms of a tenant’s credit score, income, rental history and criminal record, you are going to accept. BEFORE you start the advertising. Let the incoming tenants know what your criteria is, and let them self-screen. You want the tenants to know you are a professional landlord, and you will do a proper and thorough background check. When you are soon to be a former landlord, you go by the ‘gut feel’ approach.
Close The Deal. When you have a tenant that applies for your rental, LOCK THEM IN. Use a holding fee agreement that locks in the tenant and prevents them from applying to other places without losing a significant amount of money. I expect an application fee of $40 per adult, and $1,000 to hold the unit. At the time they drop off the application. If you eventually decline the tenant, give them back their money, less the application fee. I have had people bail and lose the $1,000, more than once.
Be Confident. I took a complex from a Class D, Section 8 neighborhood, and I am able to get Class A tenants with nothing more than a decent rental, solid tenant screening criteria, and proper marketing. If I can do it, you can too. Leave the horror stories for the landlords that skip Bigger Pockets.
Do you have any solid strategy to get great tenants? Are you having too much vacancy between tenants? Is your turnover cost more than it should be?