The most important part of making a profitable return on your real estate investment is finding good tenants. It’s also the hardest part. Your rental may be in perfect condition in a renter-friendly area, but if you fill it with irresponsible tenants, your margin will erode.
Finding great tenants means being smart with your marketing. Don’t advertise in places that are likely to attract tenants that don’t fit your needs. For example, if your home is priced to be affordable, you’ll waste your time posting flyers in trendy, high-priced coffee shops and boutiques. Advertise where your type of tenant is likely to see.
A great tactic is to contact office managers or HR people of medium or large local businesses. Let them know you have a family-friendly unit available. Give them some photos and a fact sheet to forward to anyone in need. This works great because you know the person is employed with good standing.
Don’t be afraid to require a large deposit. You may think this limits your chances of finding a tenant, but as long as your unit is clean and safe, a big deposit attracts a different kind of tenant. You’ll meet people who are better equipped financially to pay rent on time, and they’re more likely to preserve your unit, so they get their money back. Also, require renter’s insurance to cover certain damages they may cause.
Most importantly, do your due diligence! You absolutely need a rental application that asks for references. Call their previous landlord to make sure they are leaving on good terms. Call their work to make sure they have a job and expect to keep it. Use your application process for everyone, even referrals from friends or family.
Keeping a good tenant is simple. They want stability just as much as you and I. Keep in mind that your unit is someone’s residence. Moving suddenly is not easy or cheap. If you surprise them with major repairs, frequent inspections, or realtors, you’ll make them uneasy. A nervous tenant will start looking for more stable accommodations. Keep the line of communication open.
You also want to maintain your property well. Emergency repairs should happen immediately, no matter the cost. A single person may tolerate a lack of hot water for a day, but a family of five won’t. Even if the fix isn’t a necessity, put it at the top of your list.
Stay out of your tenant’s way. Keep your staff from spending more time on the property than absolutely necessary. They may be wonderful people, but avoid building social relationships. You may find yourself on opposite sides of an arbitration table one day, and you won’t want friendship clouding your reason.
Finally, avoid frequent or substantial rent increases. Yes, costs go up, and the whole point of this investment is to make money. But nothing can sour a relationship with a tenant like expanding costs. A tenant who feels abused will move elsewhere, which could slash whatever profit you were hoping to make. If you like your tenant, only raise the rent when you have to.
Renting property is a margin game. You need to keep your profit as high as possible to insulate you during the inevitable expensive months (when something breaks, or you can’t find a tenant). If you take screening and satisfying your tenants seriously, you’ll enjoy years of profits.
Commercial Lender, Vice President