I’m often asked how I’ve learned to successfully manage rental property. You see, every landlord takes a course in property management, either via the school of hard knocks, or from a good teacher.
I was blessed to learn my property management system from two great teachers, Bill Cook and David Tilney. And because of their philosophies and strategies, we have a track record of getting great tenants who take care of our properties, pay and stay for a long time.
The secret to this comes from one of David’s philosophies.
At David’s seminar, he poses this question, “Is a rental house an asset or liability?” Most people answer that it’s an asset, citing that rental properties pay you even while you’re sleeping. David will smile and ask, “What happens when the house goes vacant? Is it still an asset then?” The room often goes quiet as his question sinks in.
The truth is a rental house can be both. Its status as an asset or a liability really depends on whether your tenant is performing. Therefore, David’s mindset is that the real asset of rental property is not the house but the tenant who’s paying you.
With that idea in mind, David teaches that you should be very selective when choosing tenants. He says you should make sure they’re going be a good fit for you as well as for the property.
Bill took this mentality and turned it into an easy-to-follow strategy. He always says you’re not screening tenants, but rather, you’re conducting interviews to hire someone to do the four jobs of a tenant. These jobs are to take care of the property, pay on time, be good to work with and be a good neighbor.
Finding a tenant who can do these four jobs starts with a well-thought-out application.
Our application asks questions to determine if the applicant can afford the house. We make sure they’ve been on the job for over a year, that the rent rate is no more than a third of their monthly income, and we even have them fill out a financial statement to see what kinds of debts they have to make sure they aren’t payment poor.
That last one is important because even if their income is three times the rent rate, if they have too many monthly payments going towards other bills, we could be setting them up for failure by putting them in a house they can’t afford. This would mean they couldn’t do job No. 2.
You can find out if a potential tenant can take care of the property by asking them questions like what tools they have and what maintenance and construction skills they possess. You can even call their references and their previous landlords to see how they performed as a renter. But you really won’t know if they can do the other jobs of a tenant until you do the last step of the application process that Bill taught me, which is the in-home interview.
Doing an in-home interview is the real secret to getting great tenants. Paperwork will tell you if they will pay, but you have no idea what kind of neighbor they are or how they will actually be to work with until you meet face to face in their environment.
Here, you can see how their family interacts. You can verify the pug is not a German Shepherd. You can see what the neighbors say about them. But most importantly, you get a snapshot of what your house will look like in a few months if you allow them to move in.
That’s huge. You can’t get that intel from a paper application alone. So, if you want great tenants who will stay, take care of the property and pay on time, take the time to hire the right people and commit to doing in-home interviews.
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.