By Mike Baird
While I prefer house flipping for most of my real estate investments, there’s definitely a time and place where holding and renting a property makes sense. If you aren’t worried about paying off a high-interest loan, for example, you don’t have to be in a huge hurry to sell the property. And if the demand for rentals in your area is higher than the demand for houses for sale, you could make a lot more money in passive income than you could by selling now at a cut rate.
Of course, if you’re going to make a profit on a buy-and-hold property, you’re going to need tenants. And not just any tenants will do. You need good tenants who will pay rent on time, let you (or your property manager) know when the house needs repairs or maintenance, and won’t put too much wear and tear on the property while they’re living there. If they’re likely to stay for a few years and continue to renew the lease, that’s even better, as you won’t have to deal with a vacancy and the cost of tenant turnover.
If you want all of these traits in a tenant (and you do), then you can’t just accept the first person who comes along and wants to sign a lease. You need to screen your tenants to ensure that you’re not making a big mistake with someone who will trash your house or fail to pay rent. So how do you do this kind of screening?
Have All Potential Tenants Fill Out a Rental Application
You can find generic rental applications online, or you can ask your property manager for help finding one that will suit your property. The application should include a recent job history, previous residences, references, and proof of income. Basically, you want your tenant to prove that they can pay rent regularly and on time, and you want to be able to follow up on the places they’ve lived and worked, as well as personal and professional references.
Follow Up on All References
Some people will fill out rental applications and give you fake references, and some won’t actually check with their friends and colleagues about acting as references for them. If you can’t get through to any of a potential tenant’s references, consider it a red flag and move on to the next applicant. With the references you do get in touch with, pay attention to what they have to say when you ask them about the tenant and look for consistency.
Get a Background Check
In addition to following up on the application yourself, you should also run a background check on all potential tenants. This will usually run between $40 and $60, and you can have the tenant pay this as their application fee so that you won’t lose any money in trying to find a good tenant.
If, after you’ve run background checks and followed up with all references, you have two or more tenants who seem eligible to rent your property, you should generally go with the first to fill out an application, as this is the fairest way to make your decision.
If you follow these tips, you’ll be much more likely to find good tenants who won’t cause a lot of trouble. Unfortunately, though, nothing is ever guaranteed, which is why a lot of property management firms take care of tenant acquisition for you. If this service is available, you may want to take advantage of it, as property management firms have more experience finding and retaining quality tenants than you do.