How to find great tenants without having your house burn down
I started my real estate investing career when I moved out of California. I owned a house and thought "Hey! I'll just rent it out and start getting rich!".
It didn't go well.
I knew very little about what made a good rental. I didn't know how to analyze the financials. I didn't know how to find a good tenant. I didn't know how to manage a property.
I went ahead and listed the house for rent. I priced it a little above what our mortgage was.
There was not a ton of interest in the property at that price, but a few showed up.
I showed the property to a total of two possible tenants. I took applications and ran credit checks.
They didn't come back great. I don't remember how bad, but they would not pass my criteria today.
We were moving my family across the country. My wife and two kids, plus a dog. Moving is stressful in normal times, let alone trying to rent out your first house.
I ended up having to negotiate the final price while driving across the country. We ended up having to settle on a price below our mortgage. We had run out of time and had no other options for tenants.
Not ideal, but now it'll be smooth sailing right?
Remember when I said I didn't know how to analyze financials? Yea it was obvious we were losing a little bit on the mortgage payment, but I had not factored in maintenance.
In the end we were losing about $1,000 a month. Plus, these tenants were very needy. I was talking with them at least weekly.
Then one day, about 6-9 months into the lease, I get a text message from my old neighbor... "Hey, I just wanted to let you know that there is a fire truck at your house."
Woah! That got the heart pumping.
It turns out there was a fire in the house, the cause unclear. I spent the next 1.5 years dealing with contractors and insurance getting it fixed.
I lost around $10,000 on that whole experience.
Ever since I have taken tenant screening very seriously.
This is what I do now to ensure my tenants are shining stars among tenants.
Strict initial screening criteria
I have criteria on credit score, income, and eviction history that is immovable. These cannot be overridden ever.
- Credit score: > 600
- Income: 2x rent
- Eviction history: none
These are the bare essentials. Higher is generally better.
A great neighborhood
The neighborhood controls the pool of tenants. A better neighborhood leads to better tenants applying.
The neighborhood my Florida properties are in is fantastic. A gated community with a golf course. Designed for families.
It doesn't get much better.
Prefer to lower the price
When I'm not getting enough good tenants that meet my criteria, I will lower the price.
I'd rather have 3 good tenants to choose from at a lower price, than 1 mediocre tenant at a higher price.
Extra: How to keep good tenants
- Treat them with respect
- Respond to them immediately
- Provide the customer service you'd want