By Lew Sichelman
Answer: As the saying goes, location isn’t just the most important thing in residential real estate, it’s also the second and third most important, too. But in the rental housing market, finding a quality tenant trumps location every time.
“The essence of an investment in real estate is a good tenant,” said James McClelland of the Chicago-based Mack Cos., perhaps the largest owner-manager of single-family rental properties in the Midwest. “A good tenant in a bad location is better than a bad tenant in a good location.”
The trouble is, most novice landlords—and even some experienced ones—don’t do the legwork necessary to land a top-notch tenant who will pay his rent on time and take care of the place, hopefully like it is his own. And that’s when they are burned.
Nearly 60% of the landlords and property managers polled recently in a survey by LeaseRunner, an online leasing company, identified “finding the right tenant” as the most challenging aspect of rental real estate.
Perhaps the only thing more difficult than putting a good tenant in is getting a bad tenant out. But if you hold out for a sound one, you won’t have to go through the costly, time-consuming eviction process.
McClelland, whose company manages some 570 single-family rentals, including 200 owned by others, maintains there are “plenty of good tenants” looking to rent a nice house. “You may have to go through a bunch of [prospects] to find one,” he said, “but it’s worth it.”
So, whether you are an “accidental” landlord who has no choice but to rent your house or an investor looking to cash in on what is expected to be a booming single-family rental sector, here’s how the Mack Cos. go about it:
For starters, personally meet your prospects at your property to show them around, answer their questions and ask a few of your own.
There’s no hard rule about appearances. A guy with a bunch of tattoos who shows up on a Harley could just as easily be Mr. Right—as long as the bike isn’t loud—as a seemingly milk-toast, clean-cut guy who arrives in a Prius. But if they don’t seem to give a hoot about personal hygiene, chances are they won’t take any better care of your house than they do of themselves.
Here, you have to allow your intuition to take over. You must not discriminate because of race, color, religion, sex or national origin. Still, if you get a bad vibe about the person, if something doesn’t seem right, go on to the next one.
You also have to ask the right questions. Most novice landlords ask such things as where did you grow up and where did you go to high school, said McClelland. “They just want to see if they like the person without any understanding of their financial capabilities.”
Better to purchase a standard rental application form at your local stationary or office supply store and have your prospect fill it out completely. Most importantly, you’ll want to know how long they have lived at their current address, their rent, where they work and what they earn. Also ask why the person is leaving. It could be because he is being evicted, but it could also be because he has no choice. Maybe the owner is selling the place, or wants to allow a relative to move in.
Now verify everything. Start by interviewing the current landlord on the phone. What is the rent? How long have they lived there? Did they take care of the place? Any problems?
This article was written by Lew Sichelman and originally published on marketwatch