When a tenant gives notice that she plans to move-out of her rental property, the landlord receiving the notice often shudders. From dreading the potential vacancy period, to computing the potential turnover costs, the impending tenant move-out typically does not conjure feelings of joy and happiness in landlords. However, there is one big thing that landlords can do to help smooth out this process from the beginning... place the right tenant in the first place.
When done incorrectly, this is where the troubles typically begin for the naïve landlord. I often meet with first time landlords who have already heard all the landlord horror stories of tenants destroying rental properties. However, what I share with them is that usually, when we look back to the beginning of the tenancy, no screening process was followed to initially place the tenant. The typical tenant screening scenario of these horror stories usually begins something like, “They really wanted to rent the place and they had the first month’s rent and half of the security deposit. They promised that they’d pay the remaining security deposit the following month and they seemed like nice people…” In case you missed it, there were four rental criteria; 1. They really wanted to rent the place. 2. They had the first month’s rent. 3. They had half the security deposit. 4. They seemed nice.
What do you think of those rental criteria? What is the likelihood that you would find a great tenant with those criteria? Maybe it’s time to apply some more predictive criteria to the process. Some of the basics include things like employment verification, income verification, credit screening and previous rental history. Although in today’s world this should be basic, I’m always amazed at how many do-it-yourself landlords go for the other four screening criteria listed in the paragraph above.
In selecting the right rental criteria, the goal is to be balanced in the sense that you don’t want your rental criteria to be so tight that no one can qualify. But you don’t want such little or easy criteria, that you allow all the bad tenants to rent from you. You also need to keep in mind that over time, depending on the market conditions, your criteria may need to change. For example, seven or eight years ago, we would not have rented to someone with a foreclosure. But over the last seven or eight years, we had to loosen that criteria or we would have severely limited our tenant pool and many properties may have gone unrented.
Have you ever seen the disclaimer when stock brokerages are advertising for investors to purchase stocks and they say in the ad, “Past performance may not predict future results.”? Well guess what? With people, the exact opposite is true, past performance DOES predict future results! Sure, people can change, but it doesn’t happen very often. That’s why when it comes to applying rental criteria to tenants, if they didn’t pay the last three landlords, they probably aren’t going to pay you either. The opposite is also true, if they paid the last three landlords and left the properties in great shape when they moved out, they are probably going to do the same for you and your property.So if you want to plan for smoother move-outs as a landlord, as Steven Covey would say, “Begin with the end in mind.”