Hello, if you’ve been following us recently, you’ll know we bought our first rental property on May 5th and have been fixing it up to rent out June 1st. We are excited to share that we have found our first tenants! We have signed our first lease, and deposited our first rent check ($1600) and security deposit (First month’s rent) into our bank account.
Here are the five steps we used to find our first good tenants, and some advice if you ever take the leap of faith and get into real estate investing:
How to Find Good Tenants Tip #1: Fake it until you make it.
Don’t be afraid of trying something new. This is not rocket science where rockets can explode and people die. What I mean by, “fake it until you make it,” is surround yourself with experienced professionals at this, so you learn how they think and talk, so that you start thinking and talking like a professional before you even start.
Before I even owned my first investment property, I was surrounding myself with people who knew what they were talking about and doing. I was lucky that my best friend, Torque who I write about occasionally, owns 10+ properties so he has a ton of experience. But being lucky is only valuable if you turn that luck into profit, so over the last few years I have been asking him every question I could think of to build my own knowledge base.
I was also lucky enough to meet the successful landlord blogger, No-nonsense Landlord, at our North Stars FIRE (Financial Independnece/ Retire Early) hang out, and he was more than happy to offer me advice before I got started. I offered to buy him lunch, and he was happy to let me pick his brain for a couple of hours. That $20 I spent on lunch for him probably saved me dozens of hours of mistakes, so asking for help from experienced people is ALWAYS a great investment. I also made a good new friend out of the deal that I can now call on any time of the day to ask for advice.
These experienced and successful friends helped me think, talk, and act like a professional real estate investor before I even owned my first property. So when it was go-time and I owned my first investment property, I at least was ready to act the part. That’s my first tip: find people who know what they’re doing, and learn how to act like them until you gain experience and find your own style.
How to Find Good Tenants Tip #2: Find and Buy Cool Properties!
This tip will help you be successful even before you buy your first property. Buy properties in areas that people WANT to live in so the demand will create itself. Even better if affordable housing is hard tough to find in that area.
The easiest way to sell something, with great profit margins, is when there is a lot of demand for it. For example, one we listed our property on Craigslist and Zillow for rent, we had over 100+ potential tenants inquiring about it in the first week. This high-demand put us in the driver’s seat to ask for a monthly rent with a strong profit margin; screen the applicants hard; and be picky about who we wanted to approve for the property.
Remember, the easiest way to sell something and make a lot of money in the process, is to have a unique product that is in high demand for it. Invest in unique properties that are in high demand, and you will be on your way to creating wealth as a result.
How to Find Good Tenants Tip #3: Be Efficient and Screen Hard.
A lot of people are scared away from real estate investing because they’ve heard nightmare stories about bad tenants. But the truth about bad tenants is that they’re a lot like the bad people you see on the nightly news. If you believed the nightly news was representative of our society as a whole, you’d probably never go outside again. But the truth is, most people are generally good law-abiding people. The same is true for renters. The trick with finding good tenants is the same as finding good friends in life: Screen people hard, and then pick the ones that your gut tells you are the right ones to do life with.
The second tip to finding good tenants is to be efficient with your time as you screen them. I learned this tip from No-Nonsense Landlord. Once I listed my property for rent, I seriously received 100+ emails requesting showings of the property. If I responded to each one, and screened each one individually, I would have wasted a ton of my time because a lot of the people were below my tenant requirements.
Rather than personally responding to each inquiry, I wrote a standard mass-response I sent as a reply stating my firm requirements. This simple step weeded 80% of the bad applicants out, so I only spent my valuable time talking to the crème of the crop prospective tenants:
Here was the mass email reply I sent to all prospective tenants:
Thank you for inquiring on my Twin Cities, Minnesota, Home listing which is still available. The unit will be available June 1st, 2017. I have also attached a word document with pictures of a virtual tour.
The unit will be available June 1st, 2017.
This is a three bedroom, two bath unit. The rent price is for the property only. Utilities such as water, sewer, heat, electricity, and garbage will be the responsibility of the tenants. Lawn and landscaping will be done by the property manager who lives in the neighboring unit. The units are very private and virtually sound proof.
The home was built in 1978 so it is fairly energy efficient and does not have lead paint.
It has a single garage, but there is room to park a second vehicle in the driveway. The driveway is large enough to park two cars side by side. There is a washer and dryer in a laundry room in the basement of the home. The home has central air conditioning and heating.
Pets are not allowed. Smoking is also not allowed.
The home is conveniently located 1 minute off 694 and only minutes to 35W and 35E. It is on a quiet street, in a quiet neighborhood, and backs against grass lake nature preserve. Trails right out of the backyard lead into Snail Lake, Grass Lake, and Vadnais Lake Park. Restaurants and grocery stores are only minutes away.
I generally show the unit on weekdays between 5 PM and 9 PM, and on weekends between 11 AM and 4 PM. I schedule one showing per hour, starting at the beginning of each hour. You will need to schedule an appointment first, and then confirm the appointment via email 30 minutes before you arrive.
I will be looking for tenants with a 675+ credit score, and a solid household income of at least $55,000 per year. If you are marginal on both of these items, I will generally decline you. Your criminal background check and rental history must be clean.
I do not take Section 8. If you have had an eviction, or you have had recent criminal activity including DUIs, I generally will pass on you. If you have pets, or smoke, I will generally pass on you. If you are not a legal resident of the USA, I will not be able to rent to you as I cannot perform a valid background check.
If you are still interested and want to look at the home, please let me know.
Another tip I learned from No-nonsense Landlord: Only schedule showings during non-working hours. The logic for this is simple: You want tenants who are working during the day! Not people who are unemployed and have nothing to do during work hours!
Disclaimer: I did make some exceptions to this showing policy: I scheduled day showings to a retired couple, and corporate employee who was being transferred to the USA from Ireland. My gut told me these could be good fits, so I tried to work with their unique schedules.
How to Find Good Tenants Tip #4: Screen Again at the Showing:
I learned this tip from my friend, Torque. Once a prospect passed my email screening, I would schedule a showing to give them a tour of the property and meet them. I would walk the property with them, and answer any questions. (This usually took 15-20 minutes) And if they were interested in the property, I would ask them these 16 questions before I would even hand them an application.
This was a great way to get to know the prospective tenants better, and see if they’d be a good fit to live in my property as tenets. I also liked these questions as they were “safe” questions. You can get in big trouble if you’re a landlord that makes judgments based on the race, religion, age, and sexual orientation, etc, or applicants. This list of questions helped me get to know them on a non-discriminatory level. Here they are:
- Why are you moving?
- Can you pay first month and rental deposit?
- How many people will be living in the house?
- Can you provide references from your employer and previous landlord?
- What is your income?
- Have you been evicted or asked to leave?
- Do you have any pets?
- How would you describe your daily lifestyle? Do you work shift patterns, stay up late at night, play a musical instrument?
- Are you planning on staying long term?
- Will you be able to pass a background and credit check?
- Have you ever broken a rental agreement?
- Do you smoke cigarettes?
- Do you maintain a current renter’s insurance policy or have any issues with being required to purchase a policy with a minimum of $300,000 in liability coverage and show proof of coverage for the duration of lease?
- Have you ever been sued?
- When do you want to move in?
- How many cars will you have in the driveway?
- If I gave you advance notice, would you have any issues with me updating the property in any way to make it a better place to live?
How to Find Good Tenants Tip #5: Choose your Finalist Wisely!
Out of the 100 people who inquired about the property, I showed it to about 8 families, and both my wife and I had a good gut-feeling about the family we finally approved.
This family seemed to be easy to talk and work with, and both adults had good, steady corporate jobs. (No-nonsense landlord advised me he’s never had serious problems with white-collar, corporate-america tenants.)
They loved the area and school district for their kids, and were only moving because their previous landlord was selling their home. They were looking to be long-term renters because they didn’t want to deal with the hassles of owning a home.
Final Thoughts on How To Find Good Tenants and Close Deal:
I wrote this article to show you that if you’re ever in this situation, finding renters for investment properties is really not that hard if you buy, list, screen your properties in the right way.
Sure something bad might happen, but that’s life. If you’re going to sit in your safe little bubble where nothing bad will ever happen to you, you’ll never get anywhere meaningful, awesome, or special in life. Take risks to build wealth, but do everything you can to protect yourself from those risks.
Two final notes on things I learned during our search for our first tenants in our first rental property:
Here’s a pro-tip that no-nonsense landlord taught me: If you list your property and you get 10 qualified applicants from the listing, raise your rent or standards to you can get three to five qualified applicants to choose from because you’re only going to choose one. I think I did pretty good with this listing, but with the amount of interest I had, I may want to raise rent a little the next time I list it just to see what happens.
Another mental hurdle I had to overcome during the screening process was that I had to remember that I am only investing in these people as renters for a year. I am not committing to them for the rest of my life.
If I don’t like them, or they don’t like me, we can all move on in a year. In the beginning of the search, I was looking at people like I was giving them a 30 year mortgage and trying to make sure I could trust them to pay me back! I was examining their finances and credit background, and thinking, well, I wouldn’t do that. Or, why do they have that debt even though they can pay it off.
I had to learn, and be ok, with the fact that not everyone lives like me. I had to realize I don’t need tenants that are exactly like me. I just need tenants that are clean, respectful, and pay their rent bill on time. The rest of their life is their business, and if it doesn’t work out, we can all move on after a year. And if they do flake out on me, I have enough cash in the bank to take a couple months hit and find new renters.
So that’s what I’ve learned finding our first renters.
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Also, since it’s spring and everyone is feeling good in Minnesota heading into summer, I noticed two wrens starting to build a nest in the bird house I have attached to my home-office window. Because everyone likes baby birdies, I’ll post pictures each week in my articles as the birds build their nest, lay eggs, and hopefully start a little family of their own.
Discussion time: Leave a comment to inspire someone reading this after you. What step was your favorite? What did you find interesting about how I conducted my search? Or, how would you have improved my process so I can do better next time around?