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Ask Dave

Finding Good Tenants

Chris is ready to rent out his townhouse. How should he evaluate potential tenants?

QUESTION: Chris in Georgia is ready to rent out his townhouse. How should he evaluate potential tenants?

ANSWER: The service will be local. There are some national services, I suppose, but I would use a local service to do a basic check and pull a credit bureau report and so forth for you. You can talk to some property management firms in the area and see who they use. We subscribe to a local service for our tenant checks on our properties.

We want them to fill out an application, which includes a list of their debts, and it includes a list of their income. We look up and we say, “Well, look at that. They make $2,000 a month, and they have $3,000 a month in car payments. I think they’re going to have trouble paying their rent.” You do a little simple analysis like that and see if they can actually fit the rent into the budget. “I promise I can pay it,” doesn’t count. I actually need to see that they actually can live there and actually pay the bill because sometimes folks are more excited than their math skills. That might be a nice way of saying it. They get excited, and they bite off more than they can chew. Then you have a problem. You get to learn about eviction and going through all those kinds of fun things.

I want to do a background check on them. I want a physical phone call to the last place they rented, and maybe the place before that if they’re currently in the last place depending on the expense of the property and the kind of clientele you’re dealing with, but there are some unscrupulous landlords who, if they have a bad tenant, will tell you they’re a good tenant just so they’ll get out of their house, so you may want to check the landlord before the one they’re currently living in. Just a little technique to think about.

Just spend a little time with them. Just talk to them. Listen to them. If they have children, it’s interesting to watch how the children behave—if they behave. If they run through the house like a bunch of wild Indians, then guess what they’re going to do? They’re going to tear up your freaking house. These parents can’t make their kids behave… They can’t discipline their kids. You know what? They can’t discipline themselves either. They’re probably going to have trouble paying the bill. People whose children run their households usually don’t make good tenants.

Use some common-sense observation techniques as you’re dealing with folks, and you’ll begin to get a feel for things. Not any one of these things is enough to make or break the deal usually, but we’re going to check their credit. We’re going to check their old landlord. We’re going to check their new landlord. We’re going to look at their math and their ratios. We’re just going to spend some time with them. If you get a weird vibe off of them, if you just feel strange, don’t rent to them. There’s probably a reason you feel strange. It’s because there’s something strange. Trust your gut instincts. They’re valuable.