How To Find A Great Tenant
The most important factor in the success (or failure) or your real estate empire is the quality of tenant living in your properties. Working to find a great tenant will provide you a great return on your investment, while settling for a bad tenant will completely destroy your savings.
So it’s critical that you know how to find a great tenant as a landlord. Even if you outsource this to a real estate agent or property manager, you should understand what goes into finding a great tenant. You’ll still need to make decisions (such as pet policies, repairs to make, etc.) about your property that will impact whether you have great tenants living in your property, or horrible tenants.
This article is a comprehensive guide on how to find great tenants. It will benefit both the “do-it-yourself” landlord and the absentee landlord, and improve their odds of getting a great return on their real estate investment.
In case you have a specific question, or want to skip ahead, here’s an outline of our guide on how to find a great tenant:
Table of Contents
But before we talk about how to find a great tenant, we should ask, what exactly is a “great” tenant?
What makes a great tenant
A lot of landlords just want to get paid and will overlook other issues if the tenant has great credit.
What a short-sighted mistake!
Just because someone pays on time doesn’t mean they’re a great tenant. Do you want a meth-head in your property? Or someone who never takes out the garbage?
Here are some of the things that make a good tenant:
- Respect. Your best tenants will respect themselves, their neighbors, your property, and you.
- Law abiding. A background check will reveal any past felonies. If it’s not clean, move on.
- They pay regularly. Notice I didn’t say “on time.” A friend of mine has a tenant that pays 2 days late every month, along with late fees. He’s effectively making $600 more a year in rent because his tenant can’t manage his/her money.
(Note: follow your lease. If it allows for late fees, you can’t get angry when the tenants take advantage of this. Likewise, you should begin evictions immediately upon non-receipt of payment in accordance with the lease. Read my guide on how to evict a tenant to get started.)
These are some of the characteristics of a good tenant. To be fair, these are simply minimum requirements. I don’t want a good tenant though. I want a GREAT tenant!
Here are things that make a GREAT tenant:
In addition to the things listed above, here’s what I believe make a great tenant:
- Stable. The ideal tenant will stay in your house for many years. Turnover is costly.
- Communication. This is a tricky one. At a minimum you want your tenants to be responsive. It sucks when they’re slow to respond to your texts or calls. You don’t want them calling you every time a light bulb goes out, but you do want to know about big issues like mold or leaks. Sometimes tenants legitimately “don’t want to bother the landlord,” and a big problem gets worse.
- Clean. Messy or dirty tenants will cause a lot of problems in your property, from weird smells, to pest infestations. As they say, “cleanliness is next to godliness”
- They always pay on the 1st. I know I just said accepting late payments regularly can lead to a lot more revenue, but honestly this is very stressful. A lot of tenants will pay regularly on the 3rd (or at the end of specified grace period), and you can’t really get upset if it allows this in the lease, but it does add a bit of stress and uncertainty to your job as a landlord.
Follow these 6 steps to increase your chances of finding a great tenant for your rental property.
How To Find A Great Tenant, Step 1: Educate Yourself
The first step to find a great tenant is to understand the law. If you’re not careful, you can accidentally run afoul of the law. The main one to be aware of is the Fair Housing Act, which protects certain groups from discrimination when they are renting. Discrimination is prohibited due to race, color, national origin, religion, sex, disability and the presence of children.
Most people reading this have the common sense not to overtly discriminate against someone. However, courts have declared that an act can be considered discriminatory even in there was no discriminatory intent.
People get in trouble when they inadvertently do something perceived as discriminatory. The most oft-cited example is that putting “perfect for families” in ad copy could be seen as discriminatory against single tenants. The City of New York Fair Housing conducted a study on a neighborhood that appealed to students in 2013 and found that landlords using terms such as “grad preferred,” “ideal for 2-3 adults,” and “quiet neighbors looking for the same” were inadvertently discriminating against families.
To protect yourself, read through and understand the law. In addition, following these steps will also help you :
• Have a well-defined application process and follow the same procedures for everyone
• Document every decision you make, especially why you are rejecting certain tenants
• Be careful what you say. You don’t want to appear to be “steering” prospective tenants that may be in a protected class. In fact, there’s really no reason to even acknowledge you see someone in terms of race, religion, etc.
Next, you need to get a good understanding of what your target tenant looks like. This will help you market the property and screen tenants.
How To Find A Great Tenant, Step 2: Conduct a thorough analysis
Analyze your target tenant demographic
Close your eyes and picture who would love to live in your house.
Are they married? Do they have kids?
What about pets? What do they do for a living? How old are they?
The purpose of this exercise is to help you understand how you should position your house to find a great tenant. What does it have that is appealing to your target demographic? Where should you advertise it to make sure they see it?
This is primarily an academic exercise, as you’ll get all kinds of applicants.
As mentioned in the previous section, you can’t advertise things like “perfect for families” but you can highlight things that will appeal to families, such as a neighborhood’s safety or proximity to schools.
Analyze the neighborhood
Once you have a good understanding of what kind of tenant you want, you need to take a good hard look at your property.
Take off your “ugly baby” glasses and try to see it through the lens of your ideal tenant:
• Someone who has looked at dozens of other houses in the neighborhood.
• Someone who is comparing features among houses and doing analysis such as how long it will take them to get to work if they lived in your place.
Here’s some things you need to consider:
What makes your neighborhood special? Is it close to shopping? Is it in a great school district? Are there major employers nearby?
Analyze the competition
Now that you can tell people why they’d want to live in your neighborhood, can you tell them what makes your place special?
At the very least, you should be looking at the ads for similar properties in your neighborhood. You can tell a lot from pictures (or lack thereof). You can also tell a lot by reading the ad copy, which will reveal the strengths of these competitive properties.
For extra credit, go tour these other houses in person. View them from the eyes of prospective tenants. Absorb the feel of the house, the smell, the atmosphere.
Now think about your own property and how it stacks up. What does it have that similar properties don’t?
Does it have a large yard? A new kitchen? Hard wood floors? Solar panels? What else does it have that might help you find a great tenant?
Figure out the things that other landlords can’t say that would appeal to your target.
How To Find A Great Tenant, Step 3: Market your property
Position Your Property
Now that you’ve analyzed your property and looked at the competition, you’ll be able to create the pieces for your advertisements.
a. Description of property
• Focus on the things you want to promote and the language that will appeal to your ideal tenant. Schools, businesses, the neighborhood, etc.
• Highlight any perks your neighborhood (or you) are offering, such as access to a community pool, a free month’s rent, or other appealing things that will capture attention and help you stand out.
• I recommend getting professional pictures. This will make a HUGE impact on how many people are interested in your house. Again, focus on the things that set your property apart. Make sure the hard wood floors and the huge yard are in the pictures!
• If you’ve done a rehab, or staged your house, take pictures during that time and you’ll be able to use them for years. It doesn’t make sense to take pictures every single year, especially when tenants are already in the house and possibly cluttering up the pictures.
c. Rent and conditions of the lease.
You also need to lay out the main highlights of the lease. Of course, this includes the price but you need to also include other factors that will help prospective tenants self-select. For example, including your smoking policy, your pet policy, and minimum credit or income requirements will save a lot of time.
Price it right
Of course, one of the most important factors is to price the property right. Too low, and you’re leaving money on the table. Too high, your property will remain vacant and you’ll probably end up lowering the price.
There are lots of different strategies around pricing a rental property.
My preferred pricing strategy for finding the best tenants is to price the property slightly below market rate. This will generate a lot of demand, providing you a large tenant pool to choose from.
I’ve even had prospective tenants offer above the asking price when they see the other competition and really love your house. #winning
Sure, by pricing the property slightly below the market rate, you are leaving some money on the table. I like to think of this in terms of paying for a better tenant. That is, I’m happy to pay a few hundred dollars just to find a great tenant for the house.
Pricing a rental property is both art and science.
Here’s the method I use.
1. Look at similar houses on Zillow
a. I go to Zillow and enter in the basic details of the property: square footage, number of bedrooms, and number of bathrooms.
b. I select only places ‘for rent’ and then zoom out. You will get an idea pretty quickly how much similar houses are going for.
c. Look at a variety of the comparable properties. The first thing you should look at are the pictures, comparing the house to your rental. Is the house in bad shape relative to yours? Then you can probably ask more. Similarly, if the house is fully remodeled, whereas yours isn’t, you know the max you can ask.
d. Consider other factors too, such as schools, distance from major highways and employers, and crime.
e. The final thing you should look at is how long a house has been on Zillow. If a similar property has been on Zillow for 45 days, you know it’s priced too high.
f. From doing this comparable analysis, you should be able to get a good idea of what your property is worth, ideally within $50.
g. In this exercise, you want to see what choices a prospective tenant has when they’re searching for a specific size home. Most will be looking for a certain size residence. When they’re looking, you want them to find all the houses you’ve just found, and you want yours to stand out. You want them to think “this looks like a great deal! We should go see this one”
2. Look at similar price ranges on Zillow
a. Next, I’ll reset the search and start a new search with just the estimated price range.
b. This will bring up all the properties in the area that are priced similarly.
c. Follow a similar exercise to find out what is available in a certain price range.
d. In this exercise, you want to see what a prospective tenant can afford with his/her budget. Many of them are shopping with their budget in mind. If they can afford a certain budget, you want them to see all the houses in that price range, see yours and say “woah! I can’t believe this is within my price range!”
These two exercises should give you a similar price, just from a different point of view as someone is searching for a rental.
As stated above, I recommend pricing your property $25-$50 below the comparable rate. This will make a huge difference in the amount of inquiries you receive.
Why I like this method.
A lot of experts will say the only true way you can know comps is by looking at signed leases. While this is technically true, this is not so simple.
a. You might not have access to the MLS which has this data
b. Lease comps could be 6 months old. Rents are highly based on seasonality, and in certain markets, they’re rising fast. Looking at 6-month old comps may undervalue your rental.
c. Not all leases are the same. Some might have given a month’s free rent or a pet allowance. It’s hard to know (and compare) all those factors.
d. My method is real time, puts your property up against all the other properties for rent, and most importantly, positions your property on the market as tenants are shopping. Tenants usually don’t have access to the MLS to look at “comps”…they have access to what’s on the market right now, and that’s what they’re using to assess your property.
Now that you have narrowed down your product market, gotten a good understanding of the property, and figured out a great price, you need to promote your property to find a great tenant. The channels where you can promote your property are virtually limitless. In a hot market, simply putting a sign out front might get a lot of interest. In a tough market, in a bad season, you may have to pull out all the stops. Here is an overview of the most popular and effective promotion channels.
The first place we list our properties is online, which is where most shoppers are looking these days. Great pictures and a detailed explanation for a property that’s priced right will get a ton of interest. On some sites, like Zillow, you can even measure this interest indirectly, as it will tell you how many people “saved” the house.
• Free. Most of the big players allow you to list your properties for free. Zillow, Craigslist, Trulia, Apartments.com, etc. Keep track of which sites are driving inquiries.
• Paid. In addition to the free sites, there are paid sites that will list your properties, like rentals.com. But really, with all the free options, you don’t really need to pay.
• Syndication. The easiest thing to do is use a syndication service like Zillow Rental Manager (formerly Postlets), Zumper Pro, or a ton of others. These sites allow you to upload your pictures and copy once, and they’ll distribute your advertisement to dozens of websites automatically.
b. MLS, Real estate agents
Free websites will get you in front of the majority of tenants that aren’t using agents. Many are using agents, though, and to get their attention, you’ll want to list your property on the MLS. If you look around your city, you should be able to find an agent or broker who will list your property for a negotiable fee.
c. Social media groups
Landlords in my area have great success listing properties on social media groups, especially Facebook or NextDoor. Every little town, and sometimes even neighborhoods, will have pages dedicated to trading, gossiping, information, and other topics, including real estate.
d. Online Ads
You can do most of the above for free. Once you’ve spread your message far and wide through those channels, you can also use paid options. There are tons of paid online options available, from Facebook ads, to neighborhood e-newsletters. Don’t blow a bunch of money on ads. Pick one or two, measure their results, and if any are particularly effective, add that to your arsenal for next time.
e. Offline ads
After you’ve listed your property with all of the online options, get out of your pajamas and start promoting your property offline.
• Signs. The easiest and most effective is the simple yard sign. This will help you generate demand from the shoppers who are simply driving around neighborhoods they want to live in.
Other offline options:
• Direct mail. This can get expensive if you aren’t targeted, but if you have a great flyer, you can have a lot of success with a very thoughtful direct mail campaign. For example, mailing your flyer to every resident of a nearby apartment complex. You’ll catch the eye of many residents who might not even be looking but want to upgrade into a better place.
• Bulletin boards. Neighborhood, community, or business bulletin boards are a great place to leave your flyer and will get a lot of eyeballs.
• Door hangers, Car windshields, even newspaper ads are other creative, nonstandard ways to generate interest in your property.
One oft-overlooked way to find great tenants is through referrals. Good people know other good people, so you should definitely ask your current tenants (assuming you like them), family, and friends if they know any prospective tenants. Caution: if you go this route you should still follow the same screening process you have in place for every other prospective tenant.
How To Find A Great Tenant, Step 4: Sell yourself
It’s not enough to have the best house on the block for the best price. After all, the house isn’t going anywhere, and (hopefully) the tenants won’t go anywhere for a long time. In short, you’re entering a long-term business relationship with any tenant who moves into your property. They’re not just evaluating your property, they’re also evaluating you.
In other words, if you want to find a great tenant, you need to convince them you’re a great landlord.
Sure, you might get a desperate person who will overlook your angry demeanor just to get a roof over their heads, but a respectable (great) tenant is going to pass.
Here are some things to keep in mind:
• Be responsive. Respond promptly to emails, texts, and phone calls. Respond quickly to requests and if you don’t know an answer, get it quickly.
• Dress neat and have a clean car. Your appearance tells people a lot about what you expect of your property. If your car is a mess, your clothes dirty or sloppy, people will rightfully believe you’re a sloppy person and don’t care about cleanliness.
• Have your ducks in row/ be professional. Being on top of next steps, paperwork, and being super professional will give tenants the confidence that you will respond promptly and appropriately to any issues that arise in the place they’re living.
How To Find A Great Tenant, Step 5: Execute
Showing the house
Once people start responding to ads, the next step is to show them the house in person.
But not so fast!
You don’t want to be running to the rental every time someone calls to inquire. You’ll be running yourself ragged.
Pre-screening. Get as much information about the prospective tenants as possible. Before you show them the house, you want to have a good feeling that you’ll rent to them. You don’t need to have the background check or credit report done, but discuss this with them, along with your rules, expectations, prices, and other details. A lot of people with bad credit, a criminal record, or other issues will withdraw at this point, saving you a lot of time.
Tours of the house. If your house is occupied, having a flood of prospective tenants through can be a burden on the current occupants. Not only is this annoying to them, but you’re increasing the chances that it won’t be tidy at some point, as the current occupants can’t be expected to leave their house pristine around the clock. There are two options with tours:
• Bulk tours. Schedule a large time block one evening or on the weekend where prospective tenants can come see the place. This will be more efficient for you and could increase competition, if applicants see people looking at the place when they get there and when they leave.
• One-by-one tours. You can show the house to applicants at a time of your mutual convenience. This will probably get more people to see your place, but it’s very time consuming, especially if you live far away from the property.
Have High Standards
Having high standards conveys your expectations and the type of professional that you are. It will weed out a lot of less desirable characters and set a baseline for applicants.
Here are sample requirements as a starting point:
• The tenant may not have any prior evictions or felonies. This is table stakes. If the person can’t be a reasonable part of society then they shouldn’t be in your properties. Yes, I agree, people change and everyone deserves a second chance. Decide whether you want your rental to operate as a charity or as a business. There are plenty of great tenants out there that don’t have felonies or evictions on their record.
• The tenant must earn 3 times the monthly rent from documentable income sources. This will ensure that they make enough income to cover the rent.
• The tenant must have a 600+ credit score. Credit score is interesting and important, but I find it less relevant than other factors. Look at the circumstances. If the person’s credit is low because of student debt, and that’s it, I will weigh credit score less. Likewise, a lot of people straight out of high school or college might have perfect credit, but no work history. Are those people really less risky because they might have rich parents? My advice is to use credit score as a data point in your total assessment of the tenant.
• The tenant must have excellent references from past landlords. Amazingly, a huge percentage of landlords never conduct a reference check. Big mistake! References can be tricky, since at best, people will give names of people who will probably give them a good reference. At worst, they scam you by giving you the name of their best friend. Don’t call the person and number the tenant gives you. Instead, do a little extra research to find out the owner of the property, or the property manager, and then call them direct.
Have a great screening process
Once you decide what your criteria will be, you need a solid screening process. That’s the subject of a whole separate article, but here are some basic tips:
• Do the same thing for everyone. Not only will this keep you out of legal trouble, it will help you compare apples to apples. If you require a background check or an interview for some applicants, and not others, you won’t get enough information to make an informed decision.
• Be picky. Don’t get desperate. If you’re not getting enough applicants, that usually means your price is too high or there’s something wrong with your property. Instead of lowering your standards, lower your price or fix whatever issue is scaring people off. Trust me, you’ll lose way more money in the long run by letting in a bad tenant just to squeeze out an extra $25 a month in rent.
• Take diligence seriously. Diligence on your applicants is important business. It’s really the most important job you have as a landlord, as it will set the tone for the next 12+ months. Make a good decision, and your life will be easy. Make a mistake and your life will be hell. Don’t cut corners. Run all the background checks, check all the documents, call all the references, scope people out on social media.
So, you’ve found your dream tenant! They want to lease your place, and you want them to live there. It’s going to be a great partnership. Is your job done? NO!
• Go over the lease line-by-line with your new tenant. This is your opportunity to set the tone with your tenant. Sadly, most tenants won’t even read a lease. If they do, they’ll forget what it says. You should review the entire lease and make sure they understand all the stipulations before signing. This is also the opportunity to let them ask questions that may not have come up during the screening process. “Oh, I can’t have a boat in the driveway? Good to know…”
• Keep showing the house until you have the deposit. You must have the discipline to continue marketing your rental until you’ve received the deposit from the tenant. Things change and until someone has financially committed, you should make it clear that you’re going to keep showing the house. They’ve certainly been looking at other properties, and it’s not unlikely that there are other places they’d rather stay. Maybe yours is their “back up” plan. So don’t screw yourself by ending too soon and have to start over again once someone changes their mind.
How To Find A Great Tenant, Step 6: Follow-up (“Train them”)
At this point, the hard part is done, but you’re not out of the woods yet. You shouldn’t just give someone the keys to your property, go away, and expect the checks to show up magically without issue for the rest of the year. At this point, your behavior over the next year will affect how the tenant behaves.
Yes, many times when a tenant goes “sour,” its YOUR fault.
Even the most straight-laced tenant will act differently in your house if you let them go weeks with a broken AC.
Don’t be that landlord.
A lot of landlords call this “training the tenant.” I prefer to call it “building a mutually respectful, predictable relationship.” Here are some tips:
• Build mutual respect
From the first interaction, both parties should be showing mutual respect for each other. Treating each other right, showing up on time, doing what you say you’re going to do. This is how you should live life and this is how you should interact with tenants. Get to know their kids’ names, how they’re doing in school, what the tenants do for a living, even their birthdays.
• Keep it professional
At the same time, you must always keep it professional which means you shouldn’t become friends with your tenants. This may be hard if you’re also neighbors, but this should remain a business relationship.
The hardest time to remain professional is when something is going bad, especially when someone has crossed the line. Trust me, yelling will not solve anything. Remember, follow the lease…it tells you what to do when someone is late on the rent…and I’m pretty sure banging the door down and screaming at them isn’t in the lease.
• Follow the lease to a T
Keep a copy of the lease and refer to it often. You will have times where you can’t remember what the lease said (if anything), about a particular situation. Don’t leave it up to your gut. Do exactly what the lease says and tell the tenant that’s what you’re doing. This will protect you both. “I’m not sure what to do about the HOA warnings…let’s check the lease.”
• Do a walk-through inspection with new tenant
Before the tenant moves in, do a walkthrough inspection with the tenant. Trust me, you won’t remember in a year from now if that door knob was loose, and you don’t want to get into an argument with the tenant about who broke it.
• Routine Inspections
Conduct a semi-annual inspection with the original inspection as a baseline. This will let you gage the condition of your property, as well as identify maintenance issues before they get bad. It also gives you face time with the tenant and makes them understand that you care about the condition of the property.
What NOT To Do When Looking For A Great Tenant
So, I’ve given you some tips on how to find a great tenant. But what are some mistakes you should avoid when trying to find a great tenant?
• Don’t rent to family/friends
This is a cardinal rule of property management. A great way to end a great friendship is to enter a business relationship with them. And the tenant-landlord relationship is a business relationship. I know you’re best friends…do you plan to stay best friends??
• Don’t break laws
It’s easy to break laws even if you have the best of intentions. Reference step 1 above.
• Don’t be inconsistent
A great way to sow confusion, destroy goodwill, expose yourself to lawsuits, and cause yourself a lot of heartache is to be inconsistent at any point. Treat all applicants the same. Treat all tenants the same. Have a process and respond the same exact way every time something happens.
• Don’t ignore the whole picture
Don’t get too focused on one little thing. If someone offers to pay you higher rent, or prepay for 6 months, is that good or bad? What if one applicant got a DUI 5 years ago, and another applicant has a million dollars in the bank? Which applicant is better? You simply can’t tell with this information alone. You have to look at the entire picture. The person with the DUI may be sober for the past 5 years, and the millionaire might not respect other people’s property. The person offering to prepay for 6 months might be a drug dealer.
• Don’t get lazy
We once had applicants that looked “perfect” on paper, but when we called the previous landlord we got the true story: “sure, they’ll pay on time but they throw constant parties, and their dog has torn up all the blinds”… We dodged a bullet on that one!
• Don’t rely on a handshake or verbal agreement
If I haven’t made this clear already, let me reiterate: follow the lease! If it’s not written down, it doesn’t exist! No one (including you) is going to remember the intricacies of a conversation months later, especially if tensions are high.
• Don’t get greedy or ignore market conditions
Sorry, just because your taxes went up doesn’t mean you can raise rent. Tenants don’t care about your profits or tax bill or any of your finances. They care about finding the best home for the best price. If you can’t afford your rental because of taxes or other expenses, its probably time to reevaluate your portfolio.