Landlording Machine - (Part 1: Generating Interest and Weeding Out)

Whether you are a newbie landlord looking to buy your first deal, a landlord with just one property, or a experienced investor with hundred of properties under a property manager, choosing and retaining tenants are easily the biggest challenges for most real estate investors. Most new investors fail because they don't understand this step and let their emotions make decisions.

The keys to finding, keeping, and retaining good tenants are setting standards from the start, generating a ton of interest, and then weeding them out to find the lucky winner. This is your investment, and you want to make sure anyone that lives in your investment will treat your property with respect.

Will this guaranteed perfect tenants that pay on-time and cause no headaches? Absolutely not! No one can guarantee anything when it comes to tenants, but with this landlording machine of weeding out non-interest and standard setting, you will end up with best tenant for your property.

Application Standards

To start, make sure to check your local and state laws regarding the tenant screening process as well as the Fair Housing Standards Act. In order to screen your filtering process so you don't take anyone, you can eliminate people that have felonies, bankruptcies, evictions, judgments, income level, and bad credit.

Unfortunately, most people won't tell you they have issues regarding bankruptcies, tax liens, evictions or judgments. By putting it on a listing, it will minimize some people from applying or setting up a showing if they know they won't get to rent the property.

Regarding income level, on BP, there are lots of schools of thought - 4x income to rent, 3x income to rent, 2x income to rent, etc….it really depends on your market and property type. If you are not sure, look at a few comparable rental properties and see what they are requiring on their listing. Obviously, you want the tenant to have the highest income to rent possible to be able to cover their rent with no problems. Again, check your local and state laws.

Credit score is an interesting piece of the puzzle. Again, on BP, you will get answers from only accepting 700+ scores to 500+ scores. In my opinion, I prefer setting my standard of scores between 600-650. Why is that? I look at it from a long-term angle. 

People that have 700+ credit scores are ideal homebuyers not renters. They can qualify for low down-payment and interest rate loans easily. Banks love them! Also, my pool of applicants is much larger with 600+ score requirement than 700+. 

Thus, requiring "700+ scores only" really minimizes the pool of applicants, and even if I could find enough tenants in that range, I would think they would leave at the end of the lease once they qualify to buy a place. I want my tenants to stay forever, and a mediocre credit score won’t get them into many houses for the lowest interest rates. Therefore, they are likely to be a renter for a longer time than a tenant with a 700+ credit score. It is something to think about when you set your credit score requirement.

Getting Interest

This is the fun part. The great thing about technology is that you can now advertise in a ton of places to generate a ton of interest with zero and minimum cost. Places such as Craigslist, Facebook Marketplace, Zillow, and Cozy are all currently free. It is all about good pictures and a simple summary of your property. Post in as many places as possible. That is the key to success. You can't rely on one source anymore. 

If priced correctly with good pictures, you will get 50+ leads that first week, but what do you do with all those leads?

Weeding Out Process

If you advertise your rental at a good price, you will get a ton of interest. You will lots of requests for showings, questions, inquiries, and so on, but you are a busy person, you don't have time to answer everything. You want prospective tenants to weed themselves out, so you are only showing it to people that have passed the initial screening process.

Showings should be done on your schedule. Group showings are my favorite! Most people work during the day, so I do my showings in the evenings on weekdays and afternoons on weekends. Again, it is a “interest level” test of who shows up or not and to create competition for your property.

It is fine to confirm a few hours before the showing, but if the prospective tenant doesn’t show or call to reschedule, then they just eliminated themselves. Again, you are weeding disinterested people. 

You don’t need to chase uninterested tenants. You don't care that they don't show. If anything, you are happy because you have lots of other interested tenants and now you have filtered to the last few!

The prospective tenant that shows up at the showing, fills out an application right away, passes your background and credit check is the winner. That tenant will be a winner because you set the standards from the beginning!