The key rule in real estate is obviously “location, location, location.” We have all heard that before. If becoming a landlord is in your future you’ll want to follow the key rule to owning an investment property, “tenant, tenant, tenant.”
Whether or not you follow this rule will make or break your landlord experience. I’ve already had feedback during this landlord series from a few readers that have had really unfortunate experiences with bum tenants. Some didn’t pay their rent and others trashed the residence. There are times that you’ll do all the right things and still end up with a bad tenant. Thus is life. But here are the important things to remember for the best possible outcome in finding a good tenant for your investment property:
Follow the Fair Housing Rules. Read up to make sure you aren’t making tenant decisions based on race, gender, sex, religion, disability, or family status.
Meet them in person. This should go without saying. You will want to physically meet them and walk them through the property. Seeing your prospective renter in person can give you some important indicators as to whether or not they will respectfully inhabit your home. You’ll get a sense of their cleanliness by seeing what they drive and the gut feeling you get about them is priceless. It takes very little time to conduct a walk through so make sure you don’t miss this.
Check their references. This includes calling their last two landlords, their employer, and their personal references. Don’t slack on this. You’ll want to have actual conversations with all of these people. This helps you develop a better picture of what your tenant is like. Ask their former landlords how clean this applicant was and if they paid their rent on time. Did they have loud parties? Did they part amicably? Those are the things you want to know.
Perform a background check. My favorite service is Transunion’s Smart Move. It is the easiest service for both the landlord (you) and the tenant. With this service you won’t have that annoying paperwork problem – and you won’t be handling your prospective tenant’s social security number. You create an account and send them the link. They pay a fee and fill out the proper information. Then Transunion tells you whether or not they are likely to be a good tenant. Simple as that.
Take a large deposit. You’ll want to take a substantial deposit that will actually cover damages in case your tenant turns out to be a rotten apple. One key tip is to never make the deposit the same as their monthly rent obligation. For instance, if the rent is $1,000 you should ask for $1,200 as a deposit. If you ask for the same deposit as the rent amount your tenant will likely assume that it covers their last month’s rent. You don’t want that.
If you heed ALL of this advice you are much more likely to get a good tenant which makes your job as a landlord MUCH easier. Don’t do this halfway. The price you’ll pay over the lease term because of a poor tenant choice is just too high.
[photo courtesy of Ganesha]
7 Comment responses
Actually, Joel, the value of property is determined by 3 factors: Neighbors, Neighbors, Neighbors.
Saying “Location, Location, Location” is the PC way of saying this.
You think so Jon? I feel like my location is killer but some of my neighbors are sketch (I hope they aren’t reading this). Maybe its because I live in such a transitional part of town.
Actually, Joel, your original post proved my point when it said you lived in “a gentrifying part of town,” a phrase which you later changed to “a transitional part of town” Your original post showed that it was your new gentry neighbors which were driving up value, not the location, which remained the same.
I believe it is illegal in many states to require a security deposit that is greater than one month’s rent. Thus, you almost always see a deposit required equal to one month’s rent.
Can you clear this up, Joel? Thanks.
I’m not a lawyer so I’m not sure about how the law addresses this issue in all 50 states. I will say that I haven’t seen anything in regards to my state saying that it would be illegal. Sorry I can’t be of more help on that! Nolo.com might be able to offer more insight.
Actually. Check out this chart on Landlord.com. Most have no law in regards to the amount. Many have a max of twice the monthly rent. Only a couple seem to have a law stating that 1 month’s rent is the maximum security deposit you can ask for.
That chart is great! Thanks Joel.