Achieving success as a landlord does not happen overnight. It requires investing in the right properties and tenants, among other things, which can feel overwhelming at first. However, if you play your cards right, you will build a cash-flowing portfolio that makes you the most money with the least headaches.
The first step, of course, is to secure a property before screening tenants. Here’s what you need to know about where to best invest your capital:
- A basic understanding of real estate trends, demographics, property values, and interest rates
- Once a geographic area is selected, you have to find the right building at the right price. This includes comparing building materials (brick or frame), condition, and mechanics (furnace, AC unit, etc.).
- It is also useful to be aware of the life-expectancy of items like the roof (average lifespan of 15 to 20 years) and furnace (18 to 20 years) to budget for repair or replacement.
- How to purchase the property. What kind of mortgage will you choose? Do you have a sufficient down payment?
Now you need tenants to rent the properties, and it is essential to have a working knowledge of landlord/tenant rules and laws so you can treat your tenants fairly and avoid getting yourself into trouble. You’ll be dealing with tenant conflicts, collecting rent, appliances breaking, and trying to fill inevitable vacancies with great tenants.
Here are 5 critical steps to tenant-screening:
1) Use a rental application
Rental applications are necessary for screening purposes and verifying the information a prospect is providing. It also saves you time by letting you know who is really serious about renting.
2) Check credit, background, and eviction history yourself
Don’t accept reports run by prospects themselves. Set minimum requirements for credit and stick to them.
3) Always require a security deposit/move-in fee
While this seems like standard operating procedure, it’s not uncommon for landlords to allow prospective tenants to begin renting without a security deposit or move-in fee. Landlords offer this as a good-faith gesture, assuming they will collect at a later time that is convenient for the tenants when in fact, they are putting themselves at risk. Security deposits and move-in fees should be treated as non-negotiable items, as they provide protection and safeguards in the event something goes wrong.
4) Verify. Do your due diligence
Always verify their employment and income. Look them up on Google as well. You can find a lot from a simple online search.
5) Stick to your own rules
Most importantly, create a set of rules and be consistent with all of your prospects. Don’t allow emotions to cloud your judgement. For example, never bend the rules for someone because they seem nice. If you make exceptions, do so sparingly, otherwise you can get burned.
Many investors get lost in the minutiae, forgetting that it’s all about the people. The only thing worse than no tenants is bad tenants. Your success as a landlord is practically guaranteed if you do one simple thing: screen your tenants well.
These are just the basics. For more information, check out my ebook How to Find Tenants that will PAY, STAY, and OBEY: A Practical Guide for Simply and Effectively Screening Tenants for Your Residential Rental Unit.