Half the battle when it comes to effectively managing your rental properties is prospective tenant recruitment and retention.
Finding and keeping good tenants is essential to ensure that your investment property is adequately cared for and that your carrying costs are covered.
Find out how to find good tenants -- and how to hold on to the ones you’ve got.
What makes a “good” tenant?
You may have a sense of what makes a tenant “good” -- someone who’s friendly, cheerful, and has a great credit score, for instance. But the friendliest person in the world might pay their rent a few days late every month or fail to keep up with the property maintenance for which they’re responsible. It’s important to determine what qualities make a reliable tenant -- not just a nice one.
- A steady income is an important indicator of a tenant’s ability to pay. Even if they have a good credit score, you need to verify employment to ensure that they will be able to continue paying their rent in a timely manner over the life of the lease. Ideally, an income level three times the monthly rent is a good measure.
- Honesty is an essential marker of a good tenant. If you find that your potential tenant has lied or misrepresented facts on their application, this should be a major red flag. If they’ll lie to get into the property, who knows what they’ll do once they’re in?
- Look for stability in the applicant’s work life and rental history. If they are constantly moving from place to place or job to job, they are probably a bad risk. Don’t be fooled by a good excuse or a compelling story -- the facts speak for themselves.
How do you market your property and find good tenants?
If you already use the services of a property management company, find out if they are affiliated with a real estate brokerage. While you’ll have to pay a small percentage of the first month’s rent or security deposit to a real estate agent, you may find that tenants who work with an agent are more serious about their rental decisions and somewhat steadier than a renter from Craigslist.
Check out real estate brokerages that specialize in rentals. They may have well-developed marketing lists, online platforms, and social media accounts that make matching you with a well-qualified potential renter easier than you imagine.
Finding good tenants may depend on both the way that you present the property and the way that you screen potential renters. Think outside the box when it comes to your own policies and how they affect your ability to keep a reliable tenant.
For instance, many property owners have “No Pets” policies in place to protect the value of their property from damage. However, a young professional woman with a cat might make a much steadier and more reliable tenant than a young couple with nothing to tie them down.
Do you require your tenant to provide yard work? It may be worth adding lawn maintenance to your property manager’s to-do list in order to bring in a different group of renters. For example, a retiree may not have the physical strength or equipment to keep up with the lawn maintenance, but would make just the sort of reliable, long-term tenant you’re looking for.
What types of services can help you evaluate a potential tenant?
There are a variety of platforms designed to streamline the tenant application, investigation, and on-boarding processes. Most of these are primarily concerned with either the tenant’s financial history, criminal and rental background, or both.
Financial Evaluation & Credit Checks
The potential tenant’s financial evaluation will normally include a credit score and credit history as well as an employment verification. They may also include prior residence and eviction checks and other past rental information.
It is important to remember that the Fair Credit Reporting Act (FCRA) provides guidelines for disclosure and notification when this type of financial check is conducted. Some of the platforms provide notification letters and language to help ensure that you are in compliance every step of the way. If you have any doubts about your FCRA compliance, speak with your legal advisor.
Tenant Screening - Background/Security Checks
Background and security checks are an important way to ensure not only your tenant’s reliability but also the safety and security of your property and of any other tenants in a multi-unit building. In addition, appropriate security checks will ensure that your neighbors are more comfortable with you and with having a rental property in the neighborhood. This can be especially important in the case of communities with active and strict HOAs.
You may decide to set a time limit on criminal incidents if all of the other information is favorable. For example, a minor criminal charge more than seven years ago -- with a subsequent spotless record and favorable employment and rental records -- might be something you choose to overlook.
Note: Registered sex offenders are not protected under the Fair Housing Act, so you can refuse to rent to such an individual without legal repercussions. State and local laws can vary from federal laws, so be sure to check the specific Fair Housing guidelines for your area.
- MyRental: This platform offers a variety of financial and background investigatory services, with different tiers of pricing depending on your particular requirements. All MyRental tiers include automatically generated FCRA compliant adverse action letters as needed.
- RentPrep: RentPrep is a valuable resource, especially for new or inexperienced landlords, because it includes certified agents in order to help you interpret the findings of the financial or background check it conducts. Like MyRental, it has separate tiers of pricing depending on the number of services you utilize.
- LeaseRunner: Instead of tiered pricing packages, LeaseRunner offers an a la carte menu that allows you to choose individual services as needed. It also offers online rental applications and does not require an ongoing subscription.
There are a wide variety of additional platforms out there -- these are just a few of the more prominent ones. Be sure to check with your legal advisor regarding your application process and required communications. In addition, if you work with a real estate agent or property manager whose services include tenant on-boarding, find out what type of evaluation is included in their process.
How do you communicate expectations clearly?
In order to establish and maintain an excellent relationship with your tenants, it is important to ensure that there is clear communication on both sides. Providing the information they need -- and giving them a platform to respond -- can help improve both the on-boarding process and tenant retention.
Some states require you to provide a Tenants Rights and Responsibilities document to outline and define the rental relationship. If your market does not have such a document, you may want to look into creating your own or consult with a legal advisor to come up with specific guidelines and disclosures.
Make written communication an important part of your process. Provide an online forum for maintenance requests and rental payments or follow up phone conversations with an email. The more you get in writing the more you cover yourself and ensure there is no miscommunication.
In addition, some property management companies create libraries of online videos, blogs, or other materials covering frequently asked questions and ongoing issues. This is a great way to ensure that your tenants are never in doubt about the correct way to handle maintenance, notifications, or rent due dates. Be sure that part of your on-boarding requires your tenant to register with your online resource in order to ensure that they have access -- and hold them accountable for the information.
Remember that communication is a two way street. How can you give tenants a way to effectively ask questions or offer feedback?
- Provide an online platform where tenants can submit maintenance requests, review their lease agreement, or look at the due date and itemized breakdown of their rental payment.
- Don’t assume that a violation is purposeful. Before you act on a problem, such as an HOA violation, provide adequate notification and ask for feedback to ensure that the tenant’s questions are answered.
- Ask for feedback or a review following the completion of maintenance requests, upon a lease renewal, or after the end of a lease. You may choose to post these on an online forum like Yelp or keep them private in order to improve your own internal processes.
What policies and services aid in tenant retention?
Already have a great tenant and want to keep them for the long haul? Here are some ideas to help you hold on to them longer.
- Weigh the value of an automatic rent increase against the value of a long-term tenant. If you don’t have a compelling reason or market-driven need to raise the rent, giving them another year at the same rate may be an incentive to stay.
- Communicate consistently to ensure that short-term problems don’t become long-term frustrations. Provide a convenient way for them to get in touch and respond quickly.
- Take a look at your property management company to ensure that they are adequately and politely serving your tenants. If you have complaints from tenants about the manager, take them seriously and investigate as needed.
- If you are experiencing a high volume of tenant turnover, communicate with your tenants or property manager to find out why. Ask for feedback before the lease is up in order to address their concerns and keep them on board.
Remember, the best thing you can do in order to find and keep quality tenants is to take your responsibilities seriously throughout the process of marketing, on-boarding, and maintaining your property and relationship.