Investing in real estate is a great way to diversify your retirement and for some it is a road map to financial freedom. One of my favorite parts about real estate investing is that after our investment properties are paid off, my family will have monthly income coming in. Providing a good quality rental property that tenants want to live in and enjoy can provide a healthy rental appreciation, so your rental income continues to grow overtime.
Like any profitable and sustainable business, you have to understand and learn the business. Because real estate investing is a business after all and it must be run like one, investors need to understand the systems and processes that provide the structure for your real estate business to be successful.
One system that should be in place before you put your rental property on the market is to have a Tenant Screening system in place. This is critical to your success, because as you can imagine, a nightmare tenant can ruin your investment goals and cost you a bundle.
There was a story on The Simple Dollar about an investor that was tired of managing his property, so he decided to hire his friend that was a property manager. So, they went out to visit the property for a quick tour and meet the tenants. The tenants greeted them at the door and explained that they were doing an experiment in the basement with some pets.
While walking down into the dark, damp basement they noticed red eyes staring back at them. They marched on to find countless rats, aquariums filled with slithering snakes, and iron claw bathtubs filled with exoctic turtles. Fortunately, the real estate investor had a no pet policy, so the tenant moved out the following month. Oh yeah, they decided that they shouldn’t pay rent either.
I think you get the point. It is imperative that you have a Tenant Screening process and/or checklist in place if you are going to manage your own property. Your property manager should have one in place. Ask them for a copy of their tenant screening process.
Start off by setting your requirements, so you value prospective tenants time, as well as your own. Below are the requirements that we share with every prospective renter. Stay consistent with your tenant screening and your requirements to avoid a potential problematic tenant.
No Evictions. This is non-negotiable.
Good References - at least 2-3 landlord solid references. May consider personal reference if there is no rental history, a cosigner, or additional security deposit.
Income Verification - Tenant income must be at least 3 times the monthly rent.
Background Check - Credit, criminal background checks, as well as eviction history and identity verification.
Fair Housing, State, and Local Regulations
Take the time to know Fair Housing Laws and why they are important. There are a lot of resources available for landlords to take advantage of. Visit the HUD website for more information about the federal laws and you can also visit the state of Colorado website to access the Landlord/Tenant guide with more information about fair housing.
You can learn a lot about a person over a phone conversation. We have a script that we use for our initial phone call with an interested renter. There are several reasons for sticking to the script, but a couple of the most important are that we don’t forget an important part of the pre-screening questionnaire, as well as Fair Housing Laws. All of our staff are wonderful, caring people, but we do have interns that answer the phone that are still learning about real estate laws and regulations. If you don’t discriminate against people, then you should be fine. Again, review Fair Housing Laws and local regulations. Tell interested renters upfront the minimum standards mentioned above. This will save everyone time and energy.
Meeting prospective tenants can give you some clues if they are going to be a good tenant. Most good tenants have a list of questions and note pad to keep track of the amenities and features of the home. Are they punctual or late to the showing? What is their attitude like and how do they present themselves? Use your judgement and listen for clues on what they might be like as a tenant. And remember, to keep your pre-screening process consistent.
Painting a picture of the rental property along with the professional photography, details and features of the home, can save you a lot of time and needless phone calls. Make sure the rent is clearly displayed on flyers at the property. Professional and strategically placed signs should have a flyer box attached to the signpost, so tenants can learn more about the home and see good photos of the best features of the home. All online advertisements should have a detailed description about the home to help tenants