Top 3 Ways To Avoid Terrible Tenants

by James on 08/18/2010

Image of a Real Estate Investor with a horror story

Once you get past the fear of purchasing your first rental property and land a great place, you have got to be feeling pretty good! And, you should! However, don’t pop open the champagne just yet. Aside from getting your place all fixed up, you need to be searching for someone to pay your new monthly mortgage. And, not just anyone either! I have heard horror story after horror story from other landlords about how tenants haven’t paid the rent and even destroyed their rental properties. Don’t let this happen to you!

1. Qualify Potential Tenants

When you first speak with potential tenants whether on the phone, email or in-person, make sure you tell them that you will perform background checks and that you are not flexible on payments. Don’t start the conversation off this way, but make sure not to waste your time or the potential tenant’s time if they are not qualified. Start out by asking them what type of home they are looking for. If your property meets their requirements, then describe your rental property to them. Once this is completed and they are still interested, let them know that you will perform thorough background checks during the application process, you take pride in how much you care about your property and that you are looking for tenants who will do the same.

2. Perform Background Checks

a. Criminal history check – If you are worried about keeping your neighborhood safe and all of your neighbors at ease, make sure your potential tenants haven’t committed any crimes.
b. Rental history check – It is imperative to check rental history. If your potential tenants haven’t paid the rent in the past, they probably won’t change for you. Verify their rental history by calling the landlords.
c. Income verification check – Make sure that your tenants have enough income to pay their bills. I prefer to see at a bare minimum a gross income of three times my monthly rent payment. Closer to four times is better.
d. Credit score check – A lot of investors have mixed feelings on credit score. In my opinion, it is important to have a credit score of 690 or better. However, most people looking to rent tend to have credit trouble (at least the ones I have spoken to), so finding someone with a high FICO score is not likely. You can be flexible on credit score.

I would just make sure that there isn’t massive credit card debt, that their rental history is solid and their income is sufficient. And, of course, no criminal activity! You can accomplish most of these background checks using fairly inexpensive services (covered by an application fee from potential tenants). I have used the National Tenant Network to do most of the grunt work.

3. Trust Your Instinct

When it comes down to it, trust your instinct (or the instinct of an experienced real estate investor). If potential tenants seem like a good fit, then maybe you can be a little lenient with credit score or even income. On the flip side, if all the background checks turn out well and you don’t feel something right about tenants, then move on. One thing to look out for are tenants who meet all the criteria, but you know that they won’t stay in your rental property for more than a year. It costs money every time a tenant leaves to repair and make it ready. The longer a tenant stays in your property, the better off you should be.

Hope this helps you out! One of the biggest reasons for an investor to fail in real estate is a bad tenant. Qualify your potential tenants and perform thorough background checks. And remember, never be flexible on payment collection.

Do you have any good tips for new real estate investors? If so, please leave a comment below!

Related posts:

  1. How To Keep Your Tenants From Destroying Your Property
  2. 12 Simple Steps To Get Your First Rental Property
  3. 5 Amazing Ways That Real Estate Can Make You Wealthy
  4. Mythbuster: Bad Credit, No Money, No Problem!

{ 2 comments… read them below or add one }

Sky Kermode 08/17/2012 at 11:57 am

I’m a huge advocate of #2 (tenant screening!!). As a landlord, I will always screen my prospective tenants to ensure that I save myself from all the headaches and horror stories I’ve read & heard. When I first started screening I used E-Renter and haven’t used anyone else. I highly recommend them and tenant screening in general!

James 08/19/2012 at 6:59 am

@Sky

Yes! Tenant screening is so important. I, too, have heard many horror stories. Almost every situation involved the investor passing over all the background checks.

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