As a real estate investor or an intending investor, one of the most important forms of real estate investment that you should consider is rental properties. This is a common real estate investment wealth creation vehicle that could be a blessing or a pain, depending on the type of tenants occupying your property.
Punch reports that when you have a good tenant who pays rent regularly, maintains the property very well, relates well with you and other neighbours, this investment becomes a blessing. However, if you have a tenant that defaults frequently in rent payment and is obnoxious, this form of investment can become a pain. Knowing how to screen for good tenants is important if you want to avoid renting your property to the wrong tenant.
One of the foundational thing to know is that you should have a basic standard as to what you are looking for. If you are a professional, one of the best things to do is to have a questionnaire that every intending tenant must complete. The questions should contain basic requests for certain information that should help you understand the prospective tenant better.
Your form should contain questions on why they are moving, how many people will be living with them, what they do, where they work and you should request for references from employers or former landlord or neutral third parties. Their answers to these questions could be very revealing.
When you ask either prospective tenants why they are moving from their former accommodation, their answers could be legitimate or an excuse that is a red flag that warns you about who they might be. An example of a legitimate reason for moving is relocation from one state to another because of job posting. However, a red flag is a tenant that was evicted or is suing his or her former landlord. If a prospective tenant allowed the relationship between them and their landlord to degenerate to the extent of the landlord going to court and yet they had to be forcefully evicted from the property, then they are likely to be a difficult tenant.
You should be aware that some prospective tenants may not want to reveal the true reasons to you because they know it could make you hesitant about them but there are some tell tale signs that you should check further. One of such signs is if a prospective tenant is very urgent and desperate about getting the property. When a person is moving from one place to the other, he or she will plan and start searching for properties early. They know that even after finding the right property, there may be a few things to do before they can move into the property. It shows that they are generally reasonable and considerate. However, when someone has an unreasonable timeline or has left all arrangements till the last minute, it may indicate a disorganized person.
It is important to ask prospective tenants what they do and possibly an estimate of what they earn. The ability to pay rent regularly is key because if rent is not paid regularly, it means you have a property that is not generating any income or cashflow for you. This could be very frustrating. Generally, it is better to rent your property to those working in relatively well known companies or professionals. It is wise to be cautious of those who say they are doing business without going into specifics such as the goods they sell or services they provide. Based on the information they have provided you in this regards and the size of their family you should be able to at least reasonably project whether or not they have the means to pay their rent regularly.
One of the red flags to watch out for in this regard is if a prospective tenant is engaged in rent bargaining with you. If they are asking you for concessions on rent, they don’t have their caution deposit and are unwilling to pay the fees of professionals involved in the transaction. If they do not have the funds to pay for these things or they are seeking to pay them by instalments, it might reveal that they are having it tough financially. These type of tenants are likely to have issues with paying their rents regularly and timeously.
One word of advice that is very important is that you should do your due diligence on every prospective tenant. Once a tenant scales through your preliminary screening and you believe that they fit your qualifying standard go a step further to do the reference check and confirm that they are working or doing business where they stated. Once you discover that the information they provided is not correct, do not bother renting your property to them no matter how much they are willing to pay you. A liar can give you regrets in future.