The profitability of your rental properties hinges on having good tenants. Renting to someone quickly can be tempting if the property has been vacant for a while or if you just bought it, but it’s wise to resist this practice. Choosing your tenants carefully is critical for the success of your rental business.
Subpar tenants can cost you a lot of money, and they can threaten your short- and long-term profits. This guide is designed to help you understand the importance of high-quality applicants and provide you with tips on how to find good tenants. Here’s what you need to know.
Why Good Tenants Are Important
Good tenants will save you a lot of money in the long run by allowing you to avoid the expensive issues created by troublesome occupants. Here are the main reasons you need to focus on how to find good tenants.
Everyone moves occasionally, and people who move often tend to rent because it’s easier to move out of a rental than sell a house. Some turnover, by extension, is unavoidable when you’re a landlord, but you want to try to minimize it as much as possible.
Every time you turn over your rental, you incur extra costs to clean it and fix it up for the next tenant. Some landlords are able to have one tenant move out at the end of the month and the new tenant move in the next day, but there’s typically at least a month of lost rent in between most tenants.
Unstable tenants tend to move more often than other tenants and are more likely to break the lease. You need to screen tenants carefully to assess their financial stability and reduce the risk of turnover.
Tenants who don’t pay the rent may need to be evicted, and this can be a time-consuming and expensive process. The rules and costs vary in different states, but you can expect to spend hundreds on legal fees plus court costs, lost rent for several months, locksmith fees to change the locks, and property turnover costs such as repainting and carpet cleaning.
This can easily get into the thousands and potentially even up to $10,000 or more. The U.S. government temporarily banned landlords from evicting tenants for nonpayment of rent during the COVID-19 pandemic, and as a result, many landlords who hadn’t chosen their tenants carefully were stuck footing the bill while their tenants went months without paying the rent.
Low-quality tenants may also cause damage to your rental unit. People who aren’t financially responsible often lack responsibility in other areas, and they may neglect or outright damage your property. Even minimal damage or neglect can be costly to repair.
The point of having investment properties is to make money, and to safeguard your business you need tenants who will respect the property and pay the rent on time. You’re providing them with a place to live. Your tenants don’t have to worry about obtaining a mortgage, facing repair costs, or dealing with other responsibilities of homeownership, but in return, they need to be responsible renters.
Identifying Good Tenants
You understand their importance, but you’re probably still wondering how to find good tenants. Start by identifying what you want to see in your renters. Think about the qualities that define a good tenant, and include your desired qualifications in your listing. Here are some essentials you should consider:
Good tenants have a steady income that allows them to easily stay on top of the rent payments. Require prospective candidates to provide proof of their income. Get W-2 forms or employer letters from employees and request tax returns or bank statements from people who are self-employed. Their monthly take-home income should ideally be about three times the rent.
Good Credit Report
Looking for good credit ratings is also important. Note that tenants often have fair to poor credit ratings — it’s one of the reasons they’re renting instead of buying.
Talk with prospective tenants about their credit reports and ask them to explain unpaid bills or judgments. Consider only working with tenants who have poor credit histories if they pay an extra deposit, have a cosigner, or provide you with other reassurance that their pattern of not paying bills on time won’t affect your rental business.
Positive History With Past Landlords
A positive history with past landlords can be even more important than a good credit rating. Call old landlords, but keep in mind that the numbers provided by prospective tenants may be fake. Consider running a background check that looks into past rent payments and scans for potential evictions.
Ability to Pay Security Deposit
The security deposit is designed to protect you from unpaid rent or property damage, but it also helps you assess the financial viability of prospective tenants. People who cannot pay the security deposit may not be financially stable enough to afford your rental.
Set your expectations upfront and be clear about them during the rental application process. You may also want to think about behavioral issues along with the financial criteria listed above — for example, you may want to avoid renting to smokers or pet owners.
Our Innovative Online Platform Supercharges the Application Process
Rent Safe is designed to help you find good tenants. Our platform allows you to easily do background checks on a prospective tenant’s credit and on criminal and rental histories. It also lets you customize a digital rental application to streamline the application process for your tenants and their roommates and cosigners.