There are many articles about the boom in the rental market. Right now there are over 100 million renters in the US. Did you know that a large majority of those renters are renting from mom and pop landlords? In fact, the marketplace is dominated by landlords that own and operate 10 units or less. Many landlords either purchased rental property as an investment or fell into being a landlord and most have no formal professional education or tools to ensure their success.
In the Professional Real Estate Investor Class (next online class is in August) we have a whole section dedicated to evaluating a rental property. We also provide you with research tools that allow you to understand the local rental market. There are some basic things you’ll need to know and understand to find good tenants; such as vacancy rates and how to price your units. The time that one invests in finding good long-term tenants is one of the most important things you can do as a landlord. Look at it from the perspective of sustainability. If a unit keeps turning over, the cost can be prohibitive. So, here are some tips that will help you identify the best tenant:
Tip 1 – Price the unit at a rent that is fair and will attract good tenants. I use several methods for finding out what my competition is asking and I share several great websites in class, but there is also the old fashioned way: find a “For Rent” sign in your area and pick up the phone.
Tip 2 – Set up a proper screening process. Have all prospective tenants fill out a written rental application that includes the following: employment information, income, social security number, drivers license number, current address (and landlord information) and reason for moving. There can also be a section for them to explain anything that might appear when you pull their credit. Good tenants can have bad things happen, but if they don’t disclose it and don’t have a reasonable explanation, then you need to move on. I require them to pay the credit check fee – this lets me know if they are serious. Calling references is also key when screening.
Tip 3 – Know how to turn down a rental application and protect yourself. Make sure you comply with the Federal Fair Credit Reporting Act (FCRA). Note, the FCRA “requires landlords who deny a lease based on information in the applicant’s consumer report to provide the applicant with an adverse action notice. There are several reasons you can turn down an applicant without bringing their credit report into play. Here are just a few: Inadequate rental history (set a number of positive rental references), income level, length of employment, conviction of crime related to property in the past five years, and too new to the area.
Tip 4 – Update tenant information yearly. Like going to the doctor or registering your children for school, you’re asked to update your personal and contact information on a yearly basis.
As a landlord you should be doing the same thing. Relying on the original application is not wise. Set the expectation and have forms for your tenants to update their information. A great time to do this is when renewing the lease.
Tip 5- Simplify the collection of rent process. This is often a process landlords don’t want to spend time or money creating, but it can save them a lot of time down the line. There are now companies that are helping with and simplifying the online rent collection process. There are some real advantages to creating an online payment process. It can give tenants the ability to “mix and match” their funds. This can be helpful if you have multiple tenants on a lease.
These are just a few ideas to become a more efficient landlord. Being a landlord doesn’t need to be all-consuming if you have the right processes in place.