Finding good tenants
I was at a lunch meetup this week where one of my friends was telling me about how they are moving away from the Padsplit company and going to self-manage instead. And the biggest reason for that has to do with the tenant selection process Padsplit uses.
If you are not familiar with Padsplit, it is a novel idea. Instead of renting an entire house to one family, the Padsplit model rents each room out individually. If I understand correctly, the lease terms are short: like three, six and no more than 12-month periods. The house comes mostly furnished, utilities are included, and each room has a keyed entry lock like a front door for security. And the tenants share the bathroom and common areas.
This method fills a big need for short term affordable housing. I asked my friend what his target tenant was, and he said it ranged from traveling workers here for a short contract to millennials who are moving out for the first time. He said they tend to be good choices because they are eager to move to the area and looking to move up in jobs and homes. They just need a jumping off spot. And the fully furnished short-term rental gives them that because it is much more affordable than, for example, an extended stay hotel or trying to rent through a vacation home.
For my friend, though, it has been quite profitable. By renting by the room, he said he was able to increase his cashflow by nearly triple each month. He likes the rent by the room strategy, but the current company he is using makes him use their paperwork, which is not as thorough as his normal paperwork. And their tenant selection process is almost like if you can fog a mirror, you are approved. For instance, they don’t require an applicant to have enough money on hand to cover the cost of lease-up and to move in. Instead, they offer the option to finance those costs to get approved.
Things like that lead to less than stellar tenants. And my friend had some horror stories to tell that included people who knew how to work the system. All these factors have led him to go back to self-manage so that he can find great tenants. He and I have a very similar process of finding those tenants, and I would like to tell you some of the things we do.
The first thing we want is a tenant that loves the home. That means both condition and area. So, before we allow someone to fill out our application, we require them to see the house in person. Now that may seem a little petty, but we have had people view the property online, love the house and when they go out to view it realize their king-size furniture won’t fit in the master bedroom. By having them see it first, they didn’t waste money on an application fee, and we didn’t waste time on an applicant that wouldn’t convert.
Next, they fill out our application. In this process we are looking for someone who has a stable life. We want people who have been on the job for over a year, have had a stable living situation, and who aren’t drowning in debt. We make sure they have enough money saved that they can pay not only for the lease-up costs, but also the move.
Our whole process is centered around finding people we think can do the four jobs of a tenant.
And just to remind you, the four jobs are: No.1 Take care of the house. No.2 Pay on time. No.3 Be comfortable to work with by staying in good communication and being respectful. No.4 Be a good neighbor.
Now we can get a feel for those things via the application, but the last step of our process is the tell-all. We go and meet the applicant at their home and do an in-home interview.
This allows us to turn the people from a paper application into a real live person. Here we can ask questions that you don’t see on the application. And through those inquiries, we can listen to their responses by not only their words, but also their body language.
We meet the family, the pets and we get to see how they keep their house. That’s an important factor because how their house looks today is what our house is going to look in three months if we let them have the house.
All these observations allow us to really determine if we believe they can do the four jobs and if we want to do business with them. And it has worked nearly 100% of the time.
My friend uses this exact same strategy and will start it on his self-managed rent by the room strategy. And just like me, he thinks the in-home interview is the best way of finding good tenants.
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.