Here's how to find good tenants for your rental property.
This is what a good tenant looks like:
- Can afford (and continue to afford) to pay the rent.
- Has a track record of meeting debt obligations.
- Has rented an apartment in the past and has proven to be a model tenant.
Someone who has these characteristics provides you with the property owning experience you've worked hard to enjoy. My goal in writing this article is to help you plan the best approach to finding these ideal tenants for your apartment (or apartments).
In short, there are two stages — marketing and evaluation.
The "marketing" stage is about generating potential new tenants. The "evaluation" stage is about determining who's truly a good tenant.
Image source: firstoptiononline.com
Heads up! Don't start looking for tenants until you've set your price.
How much should I charge for rent? This is one of the most important questions in managing your rental property and finding good tenants. You've worked hard to acquire your rental property and get it into good condition. Now it's time to start enjoying the returns of owning property. Check out our article on how much to charge for rent. We'll give you some actionable insights on how to properly price your apartment.
STAGE 1: MARKETING YOUR APARTMENT
If you've already got pricing locked down, let's dig into what it takes to market your apartment to find good tenants.
At the end of the day, you've got two options for marketing your apartment. There's also something new that Jumpshell is offering to property owners in Boston.
Option #1: Go it alone.
Some landlords choose to market and fill their properties themselves. It's a labor of love, often an approach used by property owners who have not had success with brokers in the past or who only have a couple units to focus on and know they can fill the unit with less effort themselves.
You're in complete control.
If you're a DIY kind of person, then going it alone can make a lot of sense. You don't have to worry about signing listing contracts, handing over a copy of your keys (and risk someone losing them), among other liberating benefits.
Your tenants will love you.
As I detail below, one of the major drawbacks is bad agents barging in on your tenants repeatedly and unannounced. Agents are required by law to give 24 hours notice to current tenants about showings, and although good agents adhere to this rule, bad agents ignore this since there's almost no enforcement.
And there are no limits on the number of times an individual agent can show a property, so in theory they (and other agents) could be coming through every day, making your tenants very uncomfortable. Needless to say, any work you do to avoid those frequent interruptions makes your tenants very happy.
That's a lot of tenants.
Advertising your listings.
There are two primary drawbacks to creating and advertising listings for your rental property:
Listing creation, posting + management time — For maximum exposure, Craigslist is king (even though it's fraught with issues) — 87.5% of renters start their apartment search on Craigslist. But there are also a bevy of internet listing sites (ILS) like Zillow and Trulia that can assist with advertising your listing. The drawback is that it's just time consuming to create, post and manage your ads across multiple websites — imagine having your ad on 12 different ILS and then needing to change the rent price on each one. Ugh.
And with ILS, once you make the ad, it's pretty much "set it and forget it", but Craiglist is a pure numbers game. Whoever posts their ad last goes to the top of the page, so you need to constantly post ads to get any exposure there — literally thousands of apartment ads go up every hour.
Lead qualification — Dealing with lots of "unqualified leads" is another major issue. A common example of an unqualified lead you get is someone reaching out about the property and then telling you they want to move in 6 months from now — when the apartment is available next month. There are lots of other examples too where it takes a few minutes over phone or email to discover someone is not actually right for your property. Add those minute-long interactions over dozens (if not hundreds) of inquiries per week and you get a lot of wasted time.
Coordinating showings can quickly become a nightmare. If your unit is vacant and you live in the same building, you might be able to absorb a cancellation here and there. However, throw in current tenants and the need to travel to show the apartment and cancellations (especiallty the all-too-common last minute cancellation) become a huge inconvenience. Not only can reschedule requests and cancellations waste your time, but it can potentially cause you to miss out on working with another prospective renter.
Here's a very common scenario:
- A renter reaches out about your listing and you set a time to show the place.
- You coordinate a good time that works with your tenants in the unit, your own schedule and the prospective renters.
- Later in the day, another renter reaches out asking if they can see the place at the same time and they don't have flexibility to see it another time so you have to pass.
- However, on the day of the showing, the propspective renter tells you they've decided to put in an application elsewhere — and you had to pass on that other renter who could only see the apartment at that same time + may have been a perfect tenant. Darn!
Coordinating rental applications.
Working with prospective tenants to get proof of income, credit reports, deposits and everything else that goes with a proper rental application can be like herding cats. Tenant screening is one of the major value propositions that brokerage companies offer to property owners.
Traditionally, who takes the "go it alone" approach?
Often, the "go it alone" approach works for landlords who have just 1-3 properties to manage and who have had poor experiences with brokerages in the past. Each additional unit compounds the work pretty aggressively — there certainly aren't any economies of scale at play with rentals.
Option #2: Use a brokerage.
Brokerages handle all the "cons" from Option #1.
This isn't meant to be facetious. As I mentioned above, one of the primary value propositions that brokerages offer property owners is handling immense workload and patience required to fill apartments. Effectively, after an initial "onboarding" where you get the brokerage the required information and materials, you get to sit back and watch the applications flow in.
In demand-heavy markets, using a broker is free for property owners.
In markets where "supply" (i.e. apartment inventory) is tight like Boston and New York City, the marketplace proves that renters are willing to pay a fee to secure an apartment. As such, property owners can enjoy the services of a brokerage cost-free. NOTE: Outside of markets like Boston, this really does become a tricky equation.
A month's rent is effectively 8.5% of the annual rental incomes you can expect from your property. In markets like Chicago where landlords pay the fees, using a broker makes sense if you're already anticipating a month of vacancy or if the peace of mind and convenience of having a brokerage fill your units is worth the cost.
Image source: mygreatlakes.org
It may come as a shock, but it's not uncommon that brokerages lose keys. Oftentimes, it an honest mistake by one of the brokerage's agents, but nonetheless you'll still have to go through the work of hiring a locksmith, getting new locks and issuing new keys to your residents. And if you've provided a master key to the building...yikes.
It's very unlikely that you'll find a brokerage partner who will guarantee that they will fill your apartment and avoid vacancy. The real estate market is very difficult to predict, so even if your apartment is priced fairly, it may go unrented. As such, brokerages are hesitant to make any guarantees.
The National Association of Realtors (NAR) commissioned a lengthy report on the threats to the real estate industry as it exists now. Their #1 "negative game changer" was "untrained, unenthical and/or incompentant agents" (see below). And that's in the sales space, where most of the good talent in real estate flows. That leaves a lot of sub-par agents left in residential rentals.
What's the drawback of bad agents? Simply put, when bad agents represent your property, your "vacancy risk" increases — and they can really upset your tenants. Agents are required by law to give 24 hours notice to current tenants about showings, but bad agents ignore this since there's almost no enforcement. That's why it's vital to seek out brokerages with sterling reputations, who do their best to hire competant and professional agents.
Traditionally, who takes this approach?
In demand-heavy, urban markets the vast majority of landlords list with a brokerage. Despite the potential pitfalls, the risk of vacancy by "going it alone" is just too high and costly to justify not using a brokerage. And I'll stress that the value to property owners of using a good brokerage is immense.
If you're interested, here's an in-depth look at why rental brokers, agents and fees exist in Boston and how they operate — essentially, they provide a vital service to property owners who need assistance filling their units. While it sounds simple, the work involved is quite complex (as you'll see in the slides below). The "one month's rent" fee that is commonplace in Boston (and charged to the tenant) is how these agents and brokers are compensated for their work:
STAGE 2: EVALUATION
The rental application is the best way to get a read on your prospective renters.
If found a great comment from a property owner on reddit with a number of indicators to look out for — essentially characteristics that will help you understand if someone will be a good tenant or not.
- Timeliness - When you make the appointment to show the rental, is the person there on time?
- Appearance - How well are they dressed?
- References - Get 2 or three references from people who are not friends or family. Follow up with each reference, and ask each reference if they have references, and follow up with those references too!
- Work history - How long have they been with their current employer? I feel comfortable seeing at least 2 years.
- Credit report - make the renter provide you with a credit report before committing to anything. Anything over 700 is great, 600 is okay, below 550 might be bad news.
- Current life situation - Why is this person looking to move from their current place of residence? Where are they from? Moving out from parents? Breaking up with a girlfriend? Look for any signs of constant instability or turmoil.
- If you don't want to actually conduct a background check, just ask if they would consent to one. This will bring out the truth most of the time without having to actually do the legwork.
- Ask why this person moved from their last place of residence. How was the relationship with his last landlord?
I couldn't agree more with this list. In addition to having prospective renters fill out a standard rental application and provide proof of income, these indicators will help you assess if they're a good fit for your property or not.
Add your listing to Jumpshell's Apartment Marketing Platform (only in Boston).
I promise this isn't selfish promotion. If you check out the articles I've written about Boston's rental market, you'll see that I've put some time into giving an honest look at the apartment search process and procedures. If I mention another brand, it's because I truly believe they provide exceptional value to their customers — Bellhops is a perfect example.
At Jumpshell, we've been in the business of managing and growing a network of the best rental agents in Boston and Chicago to provide renters with the best possible apartment search experience, while also helping service-focused agents to earn more business. Now, we're extending the power of that network to property owners like yourself. But that doesn't mean it's right for everyone.
Since this is a new program, we'd love to talk with you about the program to see if we're right for you and your property. So feel free to click on the image below or reach out directly at [email protected].