The majority of any property owner’s long-term success comes from picking the right tenants to put in their property. While management practices can make a difference, it mostly comes down to the quality of the tenant.
Why is it Important to Have Great Tenants?
Because it’s the difference between being a happy, profitable property owner and one who’s miserable, losing money, and eager to move on from the property.
Put simply, great tenants put more money in your pocket. The most expensive cost with owning a rental property is usually vacancy. With rents crossing $2,000 for the first time in the U.S., each month you don’t have a tenant means you’re losing a lot of money—and having to pay the entire mortgage yourself.
In addition, great tenants won’t cost you as much on maintenance, as they’ll treat the property as if it’s their own. They’ll take better care of things, fix minor issues, let you know about problems when they first arise, and even offer to repaint or install new fixtures/décor that make the property better (with your permission, of course).
Also, having reliable long-term tenants removes much of your stress. Almost everyone likes the idea of owning a rental property, having someone else pay the mortgage, get some passive income, and enjoy increasing equity, but rental owners still quit and get out of the game all the time.
It’s because when you pick the wrong tenant, the entire process turns into a nightmare fast, and you’ll respond to that next postcard that says “We buy houses for cash.”
What Does a Great Tenant Look Like?
Let’s talk about “A” tenants vs “B” tenants.
“B” tenants are the ones who aren’t bad, but they just take a little longer to respond to you. They may act put out when you need to come visit the property. They’re not fixing things and may grumble when you ask them to help. They also may not stay for a long period of time.
“A” tenants are worth their weight in gold. Summed up, these are the people that are self-sufficient, drama-free, and plan to stay for a long time.
It’s true that it may take more time to find an “A” level tenant, but they’re typically worth the wait. Of course, you have to balance out the cost of vacancy if it takes you an extra two weeks to find that perfect tenant.
Another option: if you have to settle for a “B” level tenant, perhaps you tell them it’s only going to be for one year and then you’re moving on. Risky, but might be one worth taking in the hopes of finding a great tenant the following year.
12 Qualities of a Great Tenant
What does your dream tenant look like?
- Stable Employment with Good Income
- No Evictions
- Good Credit History
- No Criminal Background
- Stays Long-Term
- Abides By the Lease Agreement Rules
- Respectful to You and Your Property
- Good Communicator
- Not High Maintenance
- Has Solid References
- Understands Build-In Price Hikes
- Keeps Things Clean
1. Stable Employment with Good Income
Rents are increasing nationwide, while incomes haven’t necessarily followed suit. In fact, the average household income in the U.S. sits at $63,784 which means that rent (remember, nationwide average is $2k per month) takes up around 38% of their monthly income!
A typical rule of thumb is to not spend over 30% of your income on rent. The point is, a lot of renters are stretching each month to make their payments. If you can, find tenants who can make their payment without issue.
The last things you want are late payments, monthly negotiations/excuses, or ultimately, dealing with an eviction.
Also, be sure to ask for your tenants’ employment history on the application. If they tend to jump from job to job, you might have someone who quits their jobs easily, gets fired often, or just likes to move around a lot. Any of those can mean a short tenure for your tenant.
Without the proper income requirements or a stable job, it’s usually in your best interest to reject the applicant.
When analyzing job history, take a look to see if the applicant has been working in the same field and seeing increased responsibility. That’s a good sign they not only will have stable income moving forward, but are also responsible enough to take care of your property.
2. No Evictions
“A” level tenants usually haven’t been evicted in the past. Remember, you’re looking for reliable, committed tenants who uphold their part of the deal.
However, if they are an otherwise ideal tenant with a past eviction, have a conversation with them. What was the situation? How long ago was it?
You can look up public eviction records for free in just 5 minutes, so there’s no excuse to skip this step.
3. Good Credit History
While not as much of a smoking gun as having a prior eviction, poor credit can mean they’re having financial struggles. If possible, you want someone with a pristine record of paying off their past debts.
It’s still possible for someone with a low credit score to still be a great tenant. This could happen if:
- They are young and have very little credit history
- They have a bankruptcy in their history, but it was a one-off event due to unlikely circumstance
- They have since increased their income dramatically since the poor notes on their credit history
4. No Criminal Background
The last thing you want is for a prior felon to rent your property. Not only can the rental property be at risk, but the local neighborhood could be as well—obviously depending on the nature of the crime they committed.
Again, this is another one that doesn’t have to be black or white. If your tenant stole a candy bar when they were 19, that might be a case you can ignore. However if the crimes were violent or drug-related, no matter how long ago, you may want to look elsewhere.
It’s also worth noting that you cannot discriminate against a potential tenant for just an arrest, as the U.S. judicial system works on the premise you are innocent until proven guilty.
To run a criminal background check, be sure to collect the relevant information, such as full name, date of birth, and recent addresses.
Some locations (such as Oakland) have banned the use of criminal background checks. Before screening tenants, be sure to understand the local laws so you know what information you are allowed to gather and use.
5. Stays Long-Term
As mentioned, a perfect tenant will be someone who causes you the least headaches and provides you the most profit.
The best way to consistently profit is to always have a tenant. When you’re talking about losing $2,000 per month through vacancy, that can destroy any positive cash flow gains you’ve earned the rest of the year.
Property managers should go to great lengths to find highly qualified, responsible tenants who have good reason to stay 3 or more years. When screening tenants, pay special attention to their rental history to see if they generally stay in one spot for longer.
Property managers can help encourage lengthier stays from their tenants with these strategies:
- Inexpensive Rent – Keeping rent consistently $50 beneath going market rates entices tenants to stay.
- Keep the Property Nice – If it’s been a few years, perhaps offer to clean the carpet, repaint walls, or upgrade appliances that are getting old.
- Don’t Be Nosy – If you have a sub-par tenant, you’ll likely want to keep a closer eye. However, if you have an “A” level tenant, you can (and should) leave them to their own devices and trust they’ll report maintenance issues—especially if they have a history of doing so with your property.
- Yearly Gift – A couple of movie tickets or an Amazon gift card around Christmas can bring some extra good will.
Tenant turnover costs are likely to run you about $2,500 or more—and that number is certainly on the rise as mortgage rates increase. If you’re having yearly turnover, positive cash flow will be harder to come by.
6. Abides By the Lease Agreement Rules
Whatever rules you decide to have on your lease agreement, make sure your tenants understand them and that they are willing to follow them.
Some common lease agreement rules are:
- Let you know of renewal by a certain time
- No criminal activity
- No defacing the property, for example:
- No candles
- No big holes in the wall
- No installing new fixtures
- No rewiring
- No painting walls
- No unknown people on the lease – everyone over 18 signs the lease.
- No pets
Whatever your rules are (as long as they’re legal), be sure to enforce them. When the lease is up, look for new tenants. You want people who are responsible, follow the rules, and will respect you and the property.
7. Respectful to You and Your Property
A great tenant will treat the property like it’s theirs. You want someone who will take pride in where they are living, even if they don’t own it!
This can be a bit harder to measure during the screening process, but there are a few clues you can look out for:
- Did they show up on time to meet with you?
- Do they speak respectfully to you?
- Do they seem reluctant to handle any maintenance on the property?
- Do they ask if they should take their shoes off when going inside?
- Are they playing on their phone or taking calls while you’re explaining vital details?
Now, none of these are likely deal-breakers, but can be another red flag that ultimately has you picking a different tenant.
8. Good Communicator
This is underrated, but incredibly important! A great tenant will be someone who responds to your texts and emails promptly. They’ll let you know if they’re planning to renew the lease with plenty of advance notice. They’ll let you know immediately if there’s a leak that needs to be fixed rather than waiting a few days.
And more than the willingness to reach out is the quality of their communication. You want someone who’s going to adequately describe issues to you. You want someone who’s going to work with you, not against you.
For example, when you ask:
“When can I stop by this week to check that stain on the carpet?”
It’s not ideal if you’re getting back answers like “Sure” or “ok.”
When screening applicants, see how they respond to your text/emails. If they can’t make a certain time for a tour, do they suggest a better time? Do they demonstrate a willingness to work together with you on this?
When you meet them in-person, you’ll also get a good sense for their skill level with communication. No, you don’t need a master orator, but look for someone who will have a two-way conversation with you and ask intelligent questions.
9. Not High Maintenance
Your main goals are to increase profit and reduce your involvement in the property. The second one might not seem so obvious, but sometimes you’ll get tenants who are so horrible that no amount of income is worth keeping the property.
Right from the start, stay away from picking tenants who appear high maintenance. The best way to figure this out is by the questions they ask.
Are they really nitpicky about all sorts of aspects of the property or lease, even at the very beginning?
If they’re asking questions and/or complaining about several aspects of the property before moving in, that’s a red flag.
“Are you going to repaint this room before we move in?”
“Wait, you want us to mow the lawn?”
“This stove looks a little dirty, are you going to clean it?”
A few questions here or there are fine, along with reasonable requests, but most of us can spot high maintenance people when we see them. Much of it is in how they ask it. Don’t fall into the trap of thinking “maybe they won’t be high maintenance later on.”
10. Has Solid References
You should ask for references, and you should absolutely call them! The best tenants will be able to give you references from people who aren’t close friends and family.
You want references from people such as:
- Employer
- Boss/coworker
- Previous landlord
- Community leader they work with
- Teacher or counselor, if they’re fresh out of school
It’s true most references are hand-picked by the applicant to give a glowing review. However, after you do a few of these, you can usually get a sense for the applicant by how effusive the reference is with their praise.
Be aware that if you’d like to talk to their employer that your prospective tenant may have to fill out a disclosure of information form. Without it, many HR representatives or managers won’t talk to you. This is also a good opportunity to verify their length of employment as well as their salary.
11. Understands Build-In Price Hikes
Let’s touch on a bit of a touchy subject! Some property managers will shy away from this topic from the start, thinking that bringing up future costs will deter them from signing the lease right away.
However, the best tenants are ones that will stay for a long time so you can avoid costly vacancies, or risk getting a worse tenant. For this reason, you might consider talking about planned yearly price hikes.
There are a few reasons why this works so well:
- It establishes that you want them there for a long time.
- You can explain that you do a set yearly amount instead of reacting to the market and raising prices all at once.
- Gives you a chance to tell them that you try to stay at or below the going rate for your area (if that’s something you do).
You’ll find that by setting this expectation up front leads to more open dialogue in the future, and better tenants who know what they’re signing up for.
Since 1980, average rent prices have increased at a rate of 8.86% per year! With average nationwide rents at $2,000, that would be a $172 price hike. That’s probably a little steep to advertise up front, so a good option would be to say something like this:
“As a general rule, we raise our rents by $50 each year. We do this to smooth over increases so we don’t have one year where we have to have a massive jump that prices you out all at once. However, there may be times we have to raise it more than $50 to accommodate the market. Rest assured, our goal is to always stay at or under the going rates for the area.”
Gauging their reaction to this statement says a lot about the quality of your potential tenant!
12. Keeps Things Clean
Yes, you should definitely care if your tenant keeps things tidy! They don’t need to be a neat freak, but someone who keeps the place looking like a disaster can lead to unwanted outcomes.
For example, what if their lease is ending soon and you want to show the house…but it’s covered in dirty plates and clothes?
Plus, a dirty house is more likely to lead to issues like stains on the carpet or in the bathroom that might be hard to get off if they weren’t taken care of promptly.
Here are two ways you can get a sense for their cleanliness:
- Walk them out to their car and see how it looks.
- Drive past their current house and see the condition of their front yard.
Neither are surefire signs, but they can at least give you an idea!
Pay Attention to the Fair Housing Act
When it comes to finding great tenants, you’ll need a great screening process. However, if you don’t know the law, you can find yourself on the wrong side of a discrimination lawsuit. Make sure you know the protected classes listed under the Fair Housing Act so you don’t inadvertently discriminate.
Those protected classes are:
- Race
- Religion
- Color
- National origin
- Sex (including gender/gender identity and orientation)
- Familial status
- Disability
You should have marketing materials, advertisements, and your application looked at by a landlord & tenant lawyer to be sure you’re avoiding discrimination. Even subtle implications in your materials can lead to discrimination lawsuits.
