You are in the rental real estate business to make money-not lose it. I don’t want to sound crass since I am sure you have other motivations but the bottom line-the main way to keep score with any investment-is whether the investment is producing more money than it is burning. That’s where the rubber meets the road when it comes to rental real estate investments. It’s all about the rate of return.
Your investment must produce enough profits to cover your initial investment as well as have something leftover after you deduct for property management, taxes, and other expenses. One key factor that will seriously cripple your rental properties’ ability to produce a return on investment is the quality of your tenants.
When picking out tenants, you have to remember you are not looking for frat bros or bosom buddies. You don’t have to love them personally for you to take them as tenants. They should have just enough goodwill to live on your property with little disturbrances. Most importantly, they have to be trustworthy. This is one personal trait that isn’t very easy to figure out. Figuring out a person’s willingness and capacity to pay is far from an exact science. Read the guide below to help you find trustworthy tenants.
Before everything else, you have to remember that you cannot use tenants’ race, ethnicity, gender, sexual preference, religion, disabilities, or any other legally protected features as a shorthand for the person’s trustworthiness and reliability as far as the rent is concerned. Doing so will land you in legal trouble. Don’t use shortcuts. Use statistical and documentary information to figure out your prospective tenants’ willingness and capacity to pay.
Many standard rental application templates have a section where the prospective tenant signs off on giving you permission to look up their credit history and rating. Never fail to check on their record. You don’t want to find out the hard way that you’re renting out to a deadbeat. Look for any negative remarks. Look for patterns. Did the person just hit a rough patch in the past and was unable to pay for a few months or is this person a real deadbeat?
Depending on your state’s laws, ask for references of past landlords. Give them a call and read between the lines. You should be able to tell between a mildly negative assessment and real positive assessment.