7 tips for finding the right tenant
Finding the right tenant is key to the success of any real estate investor
Finding the right tenant is key to the success of any real estate investor. In fact, most major problems landlords face are the result of putting the wrong tenant in their property.
Here’s how to find the perfect tenant for your Colorado rental property to make investing in real estate a little easier.
Marketing your listing
Finding a great tenant starts before you even have any applicants — marketing your listing correctly can weed out tenants who aren’t right for the unit or won’t qualify. It’s key to start the process off right so you won’t waste your time or any potential tenants’ time.
You can list your unit on sites such as Craigslist, Zillow, Trulia, Facebook Marketplace, or numerous other free sites — or you may use an agent if you prefer a more hands-off approach. Either way, be sure the listing includes any important information for a tenant to know — location, rent price, security deposit, move-in date, number of beds and baths and also if there are shared spaces with any other tenants, if a washer and dryer are included, if your apartment is pet-friendly, and what utilities the tenant will be responsible for.
If you own lower-end units — like Class C property — or you anticipate lots of applicants, you may want to include any minimum qualifications you have for tenants.
This might be verifiable income over a certain amount, a minimum credit score, and your rules on felonies or past evictions. Again, this helps weed out anyone who wouldn’t qualify and avoids setting up showings with applicants who won’t be approved.
Once a potential tenant has seen the property and filled out an application, you can now begin the important work of screening them for move-in.
It is extremely important that you screen each tenant and have the same standards for everyone in order to avoid potential legal trouble for discrimination in housing. You can work with a real estate attorney to ensure your lease and screening process abides by the law.
Always run a background check on a potential tenant even if they don’t report any prior convictions. You want to use a background check to verify their application and learn more specifics about any crimes they committed — including how long ago it occurred and the severity. A background check should also turn up any past evictions. It’s up to you to determine your qualifications regarding any prior convictions and evictions.
In addition to legal issues, get a feel for a tenant’s history of abiding by the rules by contacting landlords from their last two years of rental history. Find out if there is a history of noise complaints against the tenant, lease violations, or other issues. Just because a tenant hasn’t been evicted doesn’t mean they’re a stellar tenant — it just means they didn’t make it all the way to court.
You can also ask past landlords if the tenant paid their rent on time, caused any damage to the unit and what percentage of the security deposit was returned, as well as if they were respectful to neighbors. Be sure to document your conversation to refer to it later, especially if you deny the tenant based on what you’ve learned from a past landlord.
Credit check and ability to pay
You invest in real estate to build wealth. And you can’t build that wealth if your tenant doesn’t pay their rent. Losing out on rent means you’ll miss out on valuable income, which you may depend on. You don’t want a bad tenant to result in you losing enough money to have to rely on taking out additional debt and personal loans.
When reviewing an application, ensure the potential tenant has the ability to pay what you’re charging in rent — along with their other bills and monthly loan payments, especially during these COVID times. You should also require the first month’s rent and security deposit paid prior to moving in. Starting out in the negative usually indicates a tenant will have trouble catching up.
You can start with a credit check, which will also include any outstanding debts such as car loans, student loans, mortgage, etc., and their on-time payment history. This can give you a great idea of how likely they will be to pay rent in full and on time.
A good rule of thumb in Colorado is that a tenant’s income-to-debt ratio should not exceed 40% — meaning their monthly rent and debt obligations shouldn’t be more than 40% of their gross monthly income. If this is the case, it’s likely the tenant will struggle to pay all their bills each month — including rent.
You’ll also want to contact any potential tenant’s employer to verify their employment and income or get a copy of their recent pay stub or bank statement.
Once you find a good tenant, keep them!
Any real estate investor will tell you it is cheaper and easier to keep a good tenant than having to find a new one. Expenses related to finding a new tenant include marketing fees, cleaning costs, and background check fees, not to mention potential lost rent if the unit stays vacant for several weeks or even several months and the time needed to respond to inquiries and showings. When you find a good tenant, make sure you do everything you can to keep them there.
Respond to any communication from your tenant in a timely manner, and respect their privacy by giving ample notification if you plan to enter the unit. Show them that you appreciate their good care of your property, make improvements when you can, and mitigate any disruptive tenants in a multi-unit property quickly. By treating your tenant with respect and helping them make the property their home, you’ll be well on your way to being a successful real estate investor.