As a self-managing, empire building landlord, tenants are the most important part of my business. I have learned over the years tenants can either make or break your success.
No vacancy with the tenants paying their rent on time means we have enough money to cover our mortgage, expenses, and even provide extra money to pay me a “salary” (check out out our Bare it All October Income Report to see our actual numbers).
If our tenants had not paid their rent, we would have been in financial jeopardy as there is no way we could afford to cover all of our mortgages. Yet at the same time, the more houses we own, the more diversification that occurs. At this time, we rent out enough houses that the profits cover one vacant home, which gives us wiggle room.
As you can imagine, finding quality tenants is very important to my success. Many people say quality tenants are only found, but what I have learned over the years is that is a myth.
How to Find Quality Tenants
I feel that it is a two part process.
- You need to find quality tenants.
- You need to “raise” these tenants to be the tenants that you expect.
Let’s start with the first part of finding quality tenants.
- One way to find quality tenants is by having quality houses in the areas that attract the demographic you wish to manage on a day-to-day basis.
- Another way to find quality tenants is by screening potential tenants. I require 3x rent, background and credit checks, and an application. As I have discussed, I don’t require references because I don’t believe in it.
Now, the second part — “raising” your tenants or managing them — is where many people run into issues. The best way to explain this is to think about parents and children. The difference between the unruly, spoiled kids and the well-behaved, mannered kids is the difference in how they are raised. It’s all about the way the parents have imposed expectations and whether or not they have held their feet to the fire.
It’s the common nature versus nurture argument.
You find out the nature of the tenant by doing the background and credit checks. But the nurture part is all about how you manage your tenants. This is what has allowed me to become very successful. I have specific guidelines and hold the tenants’ feet to the fire.
I have a 16-plus-page lease that has more than 37 addendums where I clearly define the tenant’s and the landlord’s responsibilities. I hold my tenants accountable for sticking to the lease. This is a business, and I treat it as one.
Ways to Raise Quality Tenants
- No Late Payments – If you are one day late, you get a note since things can get lost in cyber space. Afterward, if not rectified, I will start the eviction process. Honestly, I have never had to go past a friendly, yet professional, follow-up.
- Follow the Lease – I do not allow anyone to think the lease is anything but the law.
- Keep it in Writing – I have a 16-plus-page lease with more than 37 addendums — that way if anything at all comes into question, the answer can pretty much always be found in the lease. At the same time, I make sure all my exact expectations are in writing. For example, I expect 60 days notice before breaking the lease and I require the tenant to allow me to show the house during those 60 days. If it is not in writing, it doesn’t count.
- Create Skin in the Game – My goal in creating a well-written lease is to create skin in the game with the my tenants. I have a $100 repair deductible. The only repairs it has cut back on where the questionable ones that really didn’t need repaired.
- Be Proactive – Once an issue becomes a problem, it is too late to come up with a course of action unless it is already outlined in your lease or covered in the state laws. That is why I have a break lease clause, a repair deductible, and talk about tenant’s pest management, etc. All in all, there are 37 and growing situations that I am proactive about.
- Review Expectations Ahead of Time – I review every page of my lease with my tenants ahead of time. I answer questions and make any written clarification or alterations as needed (albeit rarely).
- Stick to the Lease – The lease is a written, binding document. When questions or concerns come up I refer them to my lease. I don’t alter, change, or renegotiate anymore — when I did, it never ended well for me.
The key at the end of the day is not only to find the great tenant (nature), but also to train them on what it means to be a great tenant (nurture). While I still have stressful times as a landlord, I have found they are greatly reduced when I use this method. My landlord experience has been so much better.
P. S. Need some resources to get your lease nurture-ready? Check out these two great resources.
Read my post on How to Create a Rock Solid Lease in ONE Evening.
Second – My Ebook. Wishing there was a resource that had explanations and addendum with the lease language already written for you? Check out my book, The Everything Lease Addendum How-To For Landlords. This is where I share all 37 of my lease addendum wording and explanations that I have put together over the years of ulcer-inducing moments, learning the hard way, and participating in forums. I create this with the hope this saves you a few of the challenges I have experienced along the way.
What has been your experience with finding quality tenants?
It is very important to find good quality tenants. Great tips, thanks for sharing!
Costello Realty & Management says
Nice post! It is very important to qualify your prospective clients first. You can’t really tell by the way they look. Another is it should be always on paper you don’t want to have problems with just verbal agreements. Highly recommended post.
Elizabeth Bennett Colegrove says
Thanks! Glad you liked the post
Lillian Schaeffer says
It sounds like finding quality tenants could be a pretty difficult and involved process. My husband and I are going to be renting out our house when we move out. We probably don’t have the time to find tenants ourselves, so maybe we should hire a property manager.
Great detailed information! In your ebook with the 37 addendums, can we copy and paste them or do we have to retype the entire thing?