So I'm closing on my fist investment property later this month. With the excitement of getting my first place comes the responsibility of finding good tenants. I'm curious what the BP community thinks about two questions I have about finding good tenants. I'm reading a book that said that the best way to find good tenants is to hold an open house rather than just posting your property online. What is your approach to finding quality renters?( I.e. - where do you post online?, do you hold open houses, etc.?)
Also what minimum qualifications do you set?
I'm considering a minimum credit score of 700, income of at least twice monthly rent, no pets and good rental references.
Also, what is your trusted company that handles credit/background checks?
Any thoughts are much appreciated!
just fyi- I already rent Brandon Turner's ultimate guide to finding renters. I'm more just looking for other's input.
Congrats on closing on your first [email protected] Gravelle, great to see people moving forward in a positive direction. I think the qualifications that you will set MUST match the area that you will be renting in. If you will be renting in an higher income neighborhood, then the qualifications that you mentioned may tend to be more obtainable in finding, but if you take those same qualifications into a lower income neighborhood, then you may find yourself not being able to find tenants that fit that criteria that you have set. I think the more you understand the workings of the demographic that surrounds your property, then you will be able to match up a quality tenant that will fit the criteria that you have set. IMO....
firstly: congrats on the new property. welcome to the club.
2 things stuck out to me about your question and as i answer, please note that i am completely unfamiliar with your tenant farm.
- 700 is a very high bar to clear for a lot of renters. you are going to be weeding out (i would assume), a lot of solid tenants. i often find great tenants with scores around 650.
- on the other end of the spectrum, twice monthly rent is a fairly low threshold (again: without knowing your price points or tenant base). in my A class apartments, I have had success with allowing rent to be no more than 33% of monthly income. In my C class apartments, I change that figure to 40%.
hope that helps. good luck and keep us posted on your success.
I don't even pay attention to credit scores. The only tenant I ever had with a good credit score bugged out owing me rent.
I require triple the rent in income, pre-tax.
I'll tell you when posting no pets cancels a lot of future renters. Pets arnt a big deal unless they do cause distruction which could be added as a clause in the contract. Lots of people love their pets and consider them part of the family.
it's really up to you're judgement. I don't think there is any clear cut way to tell a good tenant from bad except for time.
I have recently signed up for the National tenant network to do background checks, credit score, and previous evictions nationwide. There is a small setup fee then $20 per report..... Well worth the money it will save you in the long run!
If your unsure don't rent to them. Some of the best tenants just simply appreciate a roof over their head. And a lot are first time renters.
@Joe Gravelle to summarize and agree with others.
700 credit score - ditch the score and look at their credit report. Make sure they pay their housing bills. Also verify that the address on the credit report line up with the address on their application. Check the amount of their monthly payments and make sure they aren't loaded up on consumer debt. In most cases I disregard outstanding student loans and medical payments.
I consider the minimum gross income to be 3X rent. Anything less than that and one of the little bumps of life will wipe them out and take you down with them.
By saying no pets you are ruling out about 40% of all renters. Another 25% will probably look at others properties first because they want to get a pet someday. Given that, your no pet policy just shrunk your tenant pool to about 35% of all tenants. An alternative is to screen them for good pet ownership (fill out a separate pet application) and charge pet registration fees and pet rent. The SD can be used to cover damage from pets if need be. If you screen well the pets won't cause damage. While you are learning, you might do unannounced visits to their current residence for applicants you are screening. You will see what your unit will look like in a few months.
Yes good rental references are required but if their current LL speaks ill of them and everything else is glowing I would still rent to them. Landlords have been known to lie to keep good tenants. You need to check at least one landlord prior to their current. I get two, so three total.
To find a company that does credit checks you need to find one that allows you to actually see their credit report (be very careful as some will try and talk you into something less like a tenant grade). This requires an office inspection (it's federal law). It costs $75 and they have requirements like a shredder, a locked door, locked filing cabinet and separate space. It's not hard to pass but make sure you have what they are looking for. I think there are some services on this site that do that but I don't use them. I have a local company. Google or the yellow pages and make sure you learn exactly what you will get.
To answer your original question. You need to advertise online (Craig's List is popular here). The objective of your advertising is to cast your net wide so that you collect qualified applicants. You can advertise an open house online. There are pros and cons to open houses. I don't do them but I do pick a night or 2 hr window and schedule showings every 15 minutes. Invariably applicants are late or early so I often have them seeing each other which creates the same sense of urgency. I used to do open houses but found the best applicants wouldn't participate in the chaotic application process because they knew they could find another place. That may be different now that rentals are in short supply.
My approach to finding quality tenants starts before I buy. I figure out who I want to rent to and then only purchase a property they will rent. Part of that might include a fixup of the property and in that case the finishes are selected with the tenant in mind. You would not buy the same property and fix it up in the same way to rent to young professionals as you would to a seasoned Sect 8 tenant. After that you market the property to your target tenant. Again same idea, find where your tenants are and market to them on their turf. For my tenant demographics, Craig's List is all that is necessary.
Next I screen tenants on the phone before setting showings. I screen out those with criminal history (that they will admit to). Those that have breeds of dog that our insurance won't cover. I screen them to make sure they are looking for the property we have for rent. Sometimes, people get the ad from a friend and neither one bothered to read it. That way I don't waste time showing a 2nd floor unit in a fourplex to someone wanting a house. Prepare a script and follow it. Work on it until it flows naturally. This screens out time wasters. I know some that will say let them come to the open house but some of these people I don't want near my property so if we and head them off at the pass I think it is better for all.
Now if you really want to live on the edge and have an empty unit, consider doing lock box showings. Once the potential applicant passes phone screening, they get a lock box code and can let themselves in to see the place. They can do it when they want and take all the time they need. I leave some paper applications on the counter and a few stashed around the unit so that if someone walks away with them all I can point them to the back up supply. This is not for the faint of heart but with reasonable phone screening it works good. I have rented property when I was out of town. Remember if there is any doubt about the quality of the person you are considering giving the lock box code to, the answer is to schedule a showing at a time you can be there. Don't even mention the lock box until you are completely done screening. Better to lose a marginal applicant or even a great applicant than to suffer damages from a criminal posing as an applicant.
My minimum qualifications are about one type written page long. Too much for here. What you need to do is search the site and prepare a list of your own (remember your idea tenant). Never compromise that list when you have a vacant unit. If you miss a good one then after you have the place rented go back and modify your criteria. BTW I have noticed all my modifications get more stringent. That should say something about going the other direction when you are deciding on a tenant and have a looming mortgage payment. A vacancy is a blessing compared to a bad tenant is a mantra you should learn and live.
Thanks so much to everyone that responded, and a special thanks to @Bill S. For such a thorough response to my question.
I very much appreciate all of you!
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing