The Landlord’s Guide to Tenants and How to Manage Them
If you weren’t fortunate enough to buy your property with amazing tenants already inside and producing income, you may find yourself worried about selecting the right tenant. You may have heard the horror stories of tenants not paying on time, damaging the unit, or some other issue that puts pressure on you to make the best decision. After all, this decision can bring you thousands of dollars in rental income or take the same amount right out of your pocket.
Too much pressure? You can make it easy on yourself and just hire an agent, just keep one thing in mind: Hiring an agent for a rental can become expensive for both the landlord and the tenant when broker fees are involved!
While this could look like an easy way out, remember that it’s pretty common for landlords to require the first month’s rent and security deposit at the time the tenant decides to move in. Those fees alone can equal about 2 ½ months of rent just to get the key. Adding another month’s worth of rent for a broker fee can be extremely costly for a tenant and that may disqualify a large pool of applicants, even if they’re well qualified credit and background wise.
(This is also assuming you’re not using a property manager who would take care of this as well for a fee).
If you decide to take on the job of finding a tenant for your rental, here’s what you’ll need to focus on!
Location and Style of apartment
It’s the overall theme of determining the value of any piece of real estate. Location, location, location.
Starting off in a better location significantly increases your chances of attracting quality tenants, but we all know this. What also comes with the better neighborhoods are much higher prices. Prices that when analyzing, don’t make a worthy return on your investment. Therefore you may have to look at B or even C class neighborhoods to get your next property and that’s OK. You’ll have to focus on the other aspects of the location.
Does it have great curb appeal? Are the other homes on the block also well kept multifamily’s? Is it next to a main street? Is it next to a school? Is it bordering a desirable city?
Even in C class neighborhoods, these types of features can help.
Also understand the style and layout of the rental. Is the unit one of four apartments in a building? Is it on the second floor of a duplex? Newly renovated? How many bedrooms? Is it really a bedroom or is it technically the dining room? Separate rooms or railroad style?
How your rental unit looks and the layout will also be a direct correlation with the type of tenants you attract.
Screening tenants: They come in all forms
You’ve found the rental property you wanted to purchase and now you’re faced with the job of renting it out. You’ve taken some nice pictures and marketed it on popular websites such as Craigslist, Hotpads, Rent.com, and Apartments.com just to name a few. You set up a few showings, the feedback has been great, and now the applications are starting to come in. You can almost feel the sensation of laying on the beach making passive income.
You can have your prospective tenants submit an application either electronically or in paper form. You can use a couple of systems for reviewing their credit report, background history, and employment verification. As an agent, my office provides me with access to the National Tenant Network. This system allows tenants to electronically fill out an application and the system will run the person’s information to confirm whether or not the applicant is an ideal candidate based on the score she or he produces on a scale from 0-100.
It’s simple, efficient, and gets the job done quickly.
As you begin to open up the applications, you’ll start to notice there are 3 types of applications you’ll be guaranteed to receive:
“The unqualified, not sure why they even applied” applicant
Yes, you will receive a few applications that will make you feel like this. Let me be the first to say that you’re not a judge, you’re a landlord. It’s not your job to determine the character of an individual, you’re just focusing on their application. Having a poor credit score and a prior eviction are obvious tell tale signs of trouble, but that’s not to be confused with someone who’s had problems in the past, but since then has been on the straight and narrow path.
Have they become a better person? Do they still make solid income?
You’ll have to look at all the factors, not just the individual. After all, everyone needs a place to rent and not everyone’s intention is to move in and not pay rent. Most tenants don’t want any tension where they’re living. It’s just that certain tenants aren’t the best applicants.
Keep in mind the best tenants are not tenants, they’re homeowners!
“The section 8 or government assistant program applicant”
I can already imagine half the readers frowning their face the moment they receive an application from an individual that shows from the very beginning they need help paying for rent. I definitely understand.
I know investors who have had problems with these types of tenants and I know investors who ONLY have section 8 or government assisted tenants living in their rental units. It will be up to you to decide at the end of the day.
One thing you can count on with housing assistance programs is that you’ll receive your money for rent with no problem. The government pays on time, all the time!
Not to mention there are housing assistance programs in NY that will even cover the entire year’s worth of rent up front! ………..Yes you read that right.
The key to the government assisted programs is to find someone that is still a contributing member of society, not an individual who is just relying on the government. People fall on hard times income wise for a variety of reasons. It’s not that individuals aren’t trying to apply themselves. (Hell, I only made $15k my first year in business).
I would gladly take on section 8 tenants as long as they are working and taking action in life. Don’t pass up on section 8 tenants due to the negative stigma attached against them. Be sure to fully vet the applicant!
“The working professional applicant”
I think it’s safe to say that most of my readers are individuals that fit this description. While nobody is perfect and you won’t truly know an individual just by looking at an application, these type of applicants are usually the ones investors love inhabiting their units.
Even remembering myself as a tenant, my partner and I always paid on time, never complained even though it was a little chilly, and only called twice during our two year stay. Once for a clogged sink, and the other was for a faulty shower knob; items that were both fixed in less than 10 minutes combined.
These applicants usually mean you hit the tenant gold mine of applications. They show a positive history of paying on time with their credit score, they don’t get into trouble with the law as stated in their background check, and they are earning more than enough income on a monthly basis to cover rent and still enjoy their lives.
You would think you’re pretty much Scott free of any issues or headaches and you couldn’t be more farther from the truth.
Keep this in mind. The best tenants eventually become homeowners so don’t expect these types of tenants to stay for years. Not to mention they also may expect you to fix everything as an aspect to their entitlement.
At least with a lessor qualified applicant, they may be more grateful that you gave them the opportunity and may not bother you. The working professional may want certain things in tip top shape and they may feel like you need to address every issue that pops up since they’re “paying you their hard-earned money.”
Although there are pros and cons to each applicant, the working professional will most likely still top the list.
Managing tenants
You have now selected your tenant and they’ll be moving in shortly. Your job is done!
Well, 50% of your job is done.
Now your main job is keeping them happy and continuously paying. Have the mentality of rolling out the red carpet for your new tenant. It doesn’t have to be anything extravagant but at least take the time to make sure the apartment is actually ready. There’s a MAJOR difference between having the unit ready to be lived in and having a vacant unit that’s ready for the next tenant.
Take the time to go through and thoroughly clean everything in the apartment. Test the heat, the hot water, and even the water pressure. That’s another thing I learned besides the 5 things I learned after buying my first rental property. Tenants like the water pressure to be strong (who wouldn’t) and they like their water to be scorching hot. They will never take a scorching hot shower, but they just want to have the ability.
Set the expectations up front of how things will work during their stay with you and that will set the tenant/landlord relationship off on the right foot.
Have a system in place for accepting rent and dealing with issues. I used to think I would be completely OK with however the tenant paid rent, just as long as they paid it. That’s until you’re out or away for a period of time and you can’t go and physically collect rent because they’re paying in cash. Having an online system that can accept rent and spit out a receipt immediately is your best bet. You’ll have the documentation and a running history of rent payments.
In regards to repairs and maintenance, try to have your rental issue requests be sent to you via email instead of your phone. Your phone number should only be used in case of true emergencies, which legally, you’ll need to handle as quickly as possible.
An electrical outlet not working? Email.
Toilet backed up? Call.
Keeping the unit in tip top shape mechanically is more important than the cosmetics. Tenants can deal with a few discrepancies cosmetically, but it’s the mechanics of the rental unit that will either make them happy or piss them off. Once they’re happy, your phone won’t be contacted as much and you can start to get into the passive vibe of owning your rental property.
All that to say….
The location determines the tenants and the tenants determine how truly passive your investment will be. Tenants are people, not products and their well being is now in the palm of your hands as a landlord. After dealing with the pressures of life and work outside, no one wants to come home to even more distress.
Of course, if you and your tenant can’t get along, you know what to do. It’s your home.
Landlording can be a rewarding experience if you do it right. Eventually you can scale up to the point where you hire a property manager and at that point, it can truly be passive and hands off. To get to that point you may find yourself managing your own units in the beginning. It’s all good.
In the simplest way I can put it, tenants just want things to WORK inside their unit. Let me rephrase; the right tenant. Take pride in your rental units, make your tenants happy, and watch the passive income roll in from month to month!