Real Estate

Good Tenants Protect Your Investment Rental

What is the number one way to protect your investment rental property? More than anything else, the number one way to protect your investment is to seek out good tenants from the beginning.

Yes, it helps to have the proper kinds of insurance, vendors, and maintenance contacts lined up but your number one defense against problems that may crop up is finding the right people before you ever draw up a tenant contract.

Simply creating an entity such as an LLC to shield you from liability is easy to do, with plenty of online resources to help, but this may not be sufficient in the increasingly hazardous landlord-tenant legal environment.

So how do you find good tenants? And what qualifies an applicant as a “good” tenant?

You initially want to select from applicants who:

  1. Have verifiable employment
  2. Have a good credit history
  3. Have paid rent on time and without reminders
  4. Don’t have eviction in their past
  5. Can pass a serious background check

The three most important elements when screening potential tenants are income consistency, credit history, and rental history. These are the three factors you should look at when trying to find good tenants for your property.

What is income consistency? It’s when a person makes a consistent amount of income every month that is enough to pay the rent. (Rent should ideally be around 30 percent or less of a person’s monthly income.)

If you know someone’s monthly income, their past rental history, and their recent credit history, this should help you make a financially sound decision when it comes to offering a lease agreement.

Obviously you can do the legwork yourself when it comes to screening each applicant, but beware of falling afoul of the various federal laws that protect against discrimination, and check your own state laws too.

You should definitely consider using a professional tenant screening service if you are really serious about protecting your rental investment. These companies exist to check people’s backgrounds, past rental histories, credit histories, and more.

You can even investigate a person’s background beyond the typical credit check to find out if there have been any evictions in multiple states.

The full employment history of the applicant, national criminal reports, court records, and the like. How shallow or deep you look at each applicant is up to you.

Some prospective tenants not only lie about their history, but they also take on a false identity to carry the lie through.

Be aware of synthetic fraud, which involves using merging false personal data with real data – a stolen Social Security number from a child or of a deceased person.

For example, mixed with real information may pass a superficial check. This type of fraud is on the increase, and since the shutdown of the American economy in 2020, with the numerous evictions that will probably result from this, we can expect to see a rise in fraudulent applications.

Even a good tenant who will pay the rent may have come in on a lie if their true identity was not rent-worthy. Sooner or later, this may bite you.

In addition to the background checks, be sure to call each applicant’s references to verify they are all reasonable and valid. What is a legitimate reference?

Legitimate references will be the applicant’s apartment building, single-family home, or other living spaces that are professionally run and operated by a company or business owner.

If all you have is a list of friends and family who will vouch for the applicant, this may not be enough information to determine whether they are a good financial risk.

Friends and family will not have a vested interest in your business and will say only positive things about their loved one—you need to speak with the actual apartment managers, landlords, or office staff to verify that the applicant has a legitimate rental history.

Again, a professional tenant screening service can obtain and provide this information for you.

Once you do find good tenants, it is now time for you to figure out how to keep them happy, so that they become long-term tenants. This is the easiest way to protect your rental properties!

If you know someone is reliable and responsible, do your best to keep them in your rental unit for as long as possible. How do you do this? First, always communicate your expectations with your tenants from the beginning.

These are things that need to be addressed in your rental agreement, such as your policy on pets, smoking, number of roommates or family members, when the rent is due, and anything else you want to spell out in writing.

Another essential way to keep good tenants is to be responsive to any maintenance requests and get them fixed as soon as possible – and be transparent about your efforts.

This upfront investment in repairs, replacements, and regular maintenance is money well spent in the long run if it keeps your tenants in your property month after month.

The bottom line is that a good tenant will always protect your investment when you take the time to find the right ones for your property.

Finding good people who will pay their rent on time, care for the property as their own, and avoid any major damage is the best investment you can make as a property owner.