A common mistake that new landlords and real estate investors make is not recognizing the importance of accepting the highest possible quality tenants for a given property. Rather, many will sign a lease with the first prospective tenant that comes along, or accept a tenant that says all the right things but does not complete a background and credit check, cannot provide proof of income, and can’t provide references for prior landlords.
I recently experienced firsthand the value of having an exceptional tenant. I own and self-manage a single-family home in a great neighborhood in Pensacola, Florida. I also own a few single-family homes in Milwaukee, Wisconsin that are managed by a professional property management company.
Since I used to live in the Pensacola property, I occasionally still get mail sent to me at that address. About a month ago, I received a text message from the tenant in Pensacola stating that I had two important-looking letters addressed to me from the City of Milwaukee. I immediately knew this was not your typical junk mail envelope, and my Pensacola tenant sensed that as well. A less considerate tenant may have just ignored the mail or thrown it away without alerting me. I asked her to open the envelopes and send me pictures of the contents. Thankfully she didn’t just throw them away, because the letters were notices from the City of Milwaukee that one of my Milwaukee properties was in violation of local ordinances.
One of the Milwaukee tenants allowed the grass to become overgrown, and regularly left the garbage bins on the street. The notice from the city stated that if the issues were not corrected, I would be issued fines as the property owner.
I immediately reached out to my Milwaukee property management company, Smart Asset Realty in Waukesha, Wisconsin, and told them about the situation. Thankfully, Smart Asset Realty is fantastic and told me they would contact the tenant immediately to remedy both issues and let the tenants know that if any fines were issued to me, the tenants would be reimbursing me for those fines. The property management company later sent me pictures of the recently mowed lawn and reminded the tenant that per the lease agreement, they are responsible for lawn care and correct use of the garbage bins.
While the focus of this particular article is on tenants, this story also emphasizes the importance of having great property management and not just hiring the first company that shows up when you search for one.
You may be thinking “if having great tenants is so important, why didn’t your Milwaukee tenants do the right thing and take care of the lawn better?”. This is a fair point, but I think the important thing to remember is that no tenant is perfect and you can’t expect every tenant to treat the property as well as you would. Also, I believe the Milwaukee tenants just needed a reminder that caring for the property is their responsibility. This is also the first issue we’ve had with those tenants. Thankfully the management company did their job well by handling this for me. This is why they make 8% of the total rent every month!
It’s also important to remember that folks who can afford higher rent in a nice area are not necessarily better people who will take better care of your property. You can have high-quality tenants even in a property with lower rent and you can have low-quality tenants in a property with higher rents! That’s why it’s so important to screen them well, regardless of their monthly income.
Fantastic tenants will treat your property better, keep you advised of any repair or maintenance issues, pay on time (or early), and generally make your life as a landlord or property owner much easier.
Tenant screening tips to reduce landlord headaches:
- ALWAYS perform a background and credit check (or ensure your management company does this).
- Minimum 650 credit score.
- Get references from past landlords.
- Ensure the prospective tenants earn enough monthly income to afford the rent. My rule is they must earn four times the monthly rent each month, and I ask for a recent pay stub to verify this.
- Have a conversation with them to determine why they are renting and how long they plan to stay in the home. You can learn a lot from a 10-minute conversation that you can’t learn from a rental application.
Pro Tip: Be wary of any tenant who wants to pay 1 year in advance. This is a strategy sometimes used by individuals who plan to use the home for illegal activity like drug dealing. They pay upfront to reduce the chances anyone comes snooping around the property looking for rent!
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