Times of vacancy put pressure on landlords. They’re loss-of-revenue times, doubtful and working times, and if you don’t own many properties, each vacancy represents a high percentage of all your rentals and you are likely to be especially anxious to get that vacant rental filled. Be anxious, but don’t be hasty. You want a smooth operation, one which won’t continue to be trying when there’s no vacancy at all.
The most important factor in the smooth operation of rental properties is getting good tenants. If you become adept at this, all your landlording troubles will be little ones. No matter what procedure you follow for selecting tenants, if it’s working for you, keep at it. No one can argue with success. But if you should have reason to doubt the effectiveness of your tenant selection procedure or need an expert’s opinion, consider learning from the following.
The Ten Steps To Picking A Good Tenant
Just as anyone can pick a horse to bet on in a race, anyone can pick a tenant, but picking winners isn’t easy. It requires a lot of diligence and patience, as well as a little luck and some good intuition. Fortunately, the odds improve exponentially if you follow these tens steps, which are arranged chronologically.
- Prepare the dwelling for occupancy.
- Pre-qualify the prospects.
- Show the dwelling.
- Accept and scrutinize all applications.
- Check references and qualify the applicants.
- Visit applicants’ current home.
- Review your rules, requirements, and policies.
- Fill out and sign the Rental Agreement.
- Request all money or a deposit.
- Create a record of the dwelling’s condition and contents before occupancy.
These ten steps are hardly what one might call difficult, but they do require time and attention, some of them more than others. Take the time and give them the attention, some of them more than others. After the first seven steps, you might choose to reject the prospective tenants, and you shouldn’t be afraid to do so. You are not obligated to rent an available home to the first person who expresses an interest in renting it.
I repeat, you are not obligated to rent an available rental dwelling to the first person who expresses an interest. Keep looking until you are thoroughly satisfied that you have found an applicant who will be a good tenant for your building and for you, someone with whom you might have a reasonably friendly and enduring relationship.
Exercising Discrimination – Legally
Be as discriminate as you can possibly be in your selection, but by all means, DO NOT discriminate based on race, color, religion, sex, national origin, age, or physical handicap. Such discrimination is illegal throughout the United States, as a matter of Federal Law.
In addition to federal discrimination criteria, some regions have specific laws prohibiting discrimination regarding marital status, sexual orientation, source of income (occupation), personal appearance, political affiliation, place of residence, place of business, matriculation (student status), and family responsibilities. Other regions have less specific but more encompassing anti-discrimination laws which prohibit discrimination in rental housing unless it is based on legitimate business grounds.
Now with all these discrimination categories to worry about, you might think that you would have to rent to the first person who expresses an interest in your vacant home rental just to avoid a discrimination lawsuit. What is left to discriminate about anyways?
A lot actually, such that you may still discriminate based on your tenant’s ability to pay, willingness to pay, past record as a tenant, pets, waterbeds, number of vehicles, types of vehicles (you may not discriminate against motorcyclists, but noisy ones are another matter), recommendations, number of co-tenants (even though you may not discriminate against children, you may still limit the number of people you will allow to occupy the premises), intelligence, honesty, attitude (use care with this one), smoking or drinking habits, permanence, noisiness, cleanliness, etc.
Overall, don’t worry about anti-discrimination laws too much. You should always be able to find a legal reason not to rent to those who are objectionable. Set your own standards well within the law, and then set about getting good tenants you can work with. Your standards for a particular rental might look like the following:
- Gross income - needs to be four times rent.
- Income stability – needs to be at least six months with the same employer or source of income.
- Assets – fives time rent (bank account and/or automobile equity)
- Credit – established, nothing negative
- Rent punctuality – prompt, never late
- Pets – none
- Waterbed – one queen-size OK
- Vehicles – one car, no motorcycles louder than an automobile
- Personal recommendations – one available (preferably local)
- Number of tenants – maximum of four
- Intelligence – average or above
- Attitude – cooperative
- Smoking – no
- Drinking – moderation
- Permanence – at least six months in each of last two residences
- Cleanliness – average
Naturally some of the standards you use are relative to a given dwelling, some are relative to you, a particular state or municipality, and others are commonly accepted rules. Be reasonable in determining standards or you’ll never find anyone you can rent to.
One of the most important factors to consider is an acceptable number of occupants based on the size of the home. A reasonable guideline to follow is one fewer than the number of bedrooms available. Exceeding this number increases the population density to a point where maintenance and repair costs increase considerably. Floors show more wear, toilets flush more frequently, doors swing open and closed, faucets, switches, outlets, windows, heaters, garbage disposers and all the other parts of a rental home just get a lot more use and hence wear out more quickly.
Although HUD, otherwise known as the US Department of Housing and Urban Development, has its own estimates, fortunately, you don’t need to agree with them and follow their figures. Unless local housing regulations state otherwise, this is purely what you, as a landlord, are comfortable with, assuming you don’t make it overly restrictive.
One Los Angeles landlord restricted his rental homes to one occupant per bedroom and ran afoul of the Fair Employment and Housing Commission for being too restrictive. This same landlord would make no exceptions to his occupancy guidelines when children were involved, but he would make exceptions when adults were involved. You can see why he ran into trouble – he was discriminating against children, and that’s against the law.
The truth is that you have to be discriminating when you’re selecting tenants because you will find that some people are completely incapable of selecting their own living accommodations prudently. They think that a family of five, one dog, and one cat will fit comfortably into one of your one-bedroom apartments. To protect your real estate investment, you have to make the right decisions and avoid the wrong ones to keep your rental properties fully-occupied and generating income.
Some additional basic guidelines which should help landlords avoid trouble are the following: 1) No child will share a bedroom with the parents; 2) No more than two children will share a bedroom; 3) A child six years or older will not share a bedroom with a child of the opposite sex; and 4) A child ten years or older is entitled to a separate bedroom.
Read on with 10 Steps To Getting Good Tenants For A Rental.