The Secret for Keeping Profitable Rental Properties? It’s All About the Tenant

Savvy real estate investors insure profitable rental properties by finding and keeping good tenants.

Many real estate investors are only interested in buying investment properties, fixing them up, and selling them for a clean, quick profit. And there are others who get a solid bang for their buck by buying, rehabbing and leasing with an option to buy. But there is a growing number of savvy investors who understand the value of buying, rehabbing, and keeping profitable rental properties.

Cash flow and appreciation

Many of this latter group of buy-to-rent investors are purchasing properties in areas that are showing steady appreciation, so it makes sense to hold on to their rentals for as much as 5 or 10 years, or even longer. And because the areas in which they are buying are appreciating, they don’t like the idea of locking the property into a 1- or 2-year lease option to sell at today’s market value. They’d rather buy a property as a long-term investment, do a first-class rehab, and find stellar long-term tenants to provide them with good cash-flow as they sit back and let the home appreciate.

Here are a couple of guidelines to follow in order to find and keep good tenants:

1. The quality of your property dictates the quality of your tenants.

  • Buy in up and coming areas – If you pick up a cheap rental property in a rundown neighborhood you scare off good tenants and attract bad ones. A nice house in a nice neighborhood will attract nice tenants. Simple as that.
  • Do not under-renovate – Investors that under-renovate a distressed home are just asking for a low class of tenant. And low quality tenants bring big problems. Spending a little more in the rehab acts like a magnet and attracts a better tenant. And it allows you to charge more rent.

2. Thorough applicant screening insures good tenants.

  • Look at everything – This means you perform due diligence and call all references, especially past landlord references. Also look at their credit history and perform a criminal check. Studying the results of your due diligence will insure a good tenant.
  • Be forgiving of old mistakes – If an applicant has a low credit score because of an illness several years ago, or a bankruptcy in their past, try to look beyond that at their payment history over the last 2 or 3 years. If they have a solid record of responsibly paying their bills on time, you should consider renting to them.
  • Never rent to anyone who has been evicted – This is just asking for trouble. If someone has been evicted it’s because they left their former landlord with no other option. You don’t want to be their next victim; there are too many good tenants out there without this lousy track record.

By applying a bit of common sense, owning nice properties and performing your due diligence, you are much more likely to attract solid tenants. And strong, long term tenants insure good cash flow while your investment property appreciates. It’s a no-brainer.

On a recent episode of his podcast Real Estate Investing Made Easy, Josh interviewed Daniil Kleyman, who shared some of his secrets for building and maintaining a portfolio of highly profitable rental properties. You can download the podcast free on iTunes or wherever you get your podcasts.

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