Self Help

One of the best ways to evaluate the prospects for a particular neighborhood is to play the role of a residential tenant looking for the best place to call home. Go back in time to when you made the decision to live in your neighborhood. What were the primary criteria you used to make that determination? You’re probably typical of many of your potential tenants. They prefer rental properties in close proximity to employment centers, transportation, schools, child-care, places of worship, shopping, recreation, and medical facilities. These details can be captured in what is called a “property knowledge sheet.”

What Is a Property Knowledge Sheet?

One of the best ways to have the answers to the questions that may be raised by your rental prospect is to prepare a property knowledge sheet for each of your rental property locations. A property knowledge sheet contains all the basic information about your rental property, such as the size and type of the rental unit and the unit number (for multiple-unit properties), plus the age, type of construction, and other important details about the unit.

A thorough property knowledge sheet also contains important information about the local neighborhood and general area. Like the chamber of commerce or visitor’s information bureau, you want to be able to answer questions about the area. Rental prospects are generally interested in knowing about employment centers, transportation, local schools, child care, places of worship, shopping, and medical facilities. You can really make a positive impression on your rental prospect if you can tell them where the nearest dry cleaner or Thai restaurant is located. With all this vital information from your property knowledge sheet at your fingertips, you can be ready to answer your rental prospect’s questions. The more you know about your property, the easier it is for you to offer important reasons for a prospect to select your rental over the competition.

Property knowledge sheets can definitely give you the edge over your competition. Because you’ll often be competing with large multifamily rental properties, you need to be prepared to answer important questions about the area. Often, immediately knowing a detail such as whether a certain child-care center is in your area can make the difference between success and failure.

Looking at a property from a tenant’s perspective is also useful if you’re investing in commercial properties. Remember that your commercial tenants are in business to make money - and their location is often a key factor. Have you ever seen a small retail center that includes several vacant suites with butcher paper in the windows? That is the universal sign that a property is in financial trouble and in need of proactive ownership, management, and leasing - or the spiral toward foreclosure will continue.

Right down the street from a failing property, you may find another retail property with long-term leases and a waiting list, because successful retailers almost always flock together. That explains the success of many regional shopping malls that command high rents. Sometimes, just getting the right anchor or primary tenant in a commercial, industrial, or retail income property is all it takes to start the chain reaction toward the dream for any landlord — high occupancy, high rents, and low turnover!

Getting to Know Your Prospective Tenants

The way to get a tenant to take care of the property and pay the rent on time is to rent to the right tenant straight from the beginning. This is the biggest problem area for most new landlords. How do you get the right tenants? Rest assured there is no guaranteed formula. There are, however, certain tips that will prove helpful.

Of course you will want to talk with the prospective tenants and form an opinion of them. (This is very important and is why it is always suggested that you do the renting of the property personally.) And the main factor that can help attract and rent to an upstanding tenant is getting somebody with a good track record.

The Credit Report

Today, you as a landlord should have no trouble in getting a written credit report on a prospective tenant. All that you really need to do is to contact one of the local credit agencies (listed in your phone book), explain what you want, and have them send you some of their forms. The cost is usually under $25 for a brief report.

When you find likely tenant candidates, have them fill out the form, being sure they give you permission to check their credit history. Then contact the credit-reporting agency with your request. Usually within a day you’ll have a printout of their credit history. Check it over carefully.

Ideally you’re looking for tenants with no bad credit. They pay all their bills on time and have credit with a wide variety of lenders from credit card companies to department stores to banks. Chances are, however, you won’t find this kind of tenant all the time (or even very often). More likely the person who rents has spotty credit - some good, some bad.

Study the credit report. If the prospective tenants have a lot of “late paying” notes, chances are your rent won’t be paid on time either. If they have some loan defaults or other failures to pay, you may not get your rent at all.

The credit report should be taken as an indication of how the prospective tenants view their credit. If they view it casually and don’t really care, then you could end up with no rent. You want tenants who take their credit seriously and who regularly pay on time. One of the biggest mistakes is to “fall in love” with a tenant (not literally, but figuratively). The tenant seems ideal, until the credit report comes in. You look at the bad credit report and then choose to ignore it because you’re so convinced the tenant is wonderful. Bad move. Ultimately it’s a judgment call. However, if you decide not to give a bad credit report a lot of credence, why did you order the credit report in the first place? Give the tenant a chance to explain bad credit. Listen to the explanation. It may be perfectly logical and may not be the tenant’s fault.