Evaluating Potential Renters
August 2, 2010 · Published By Tanya Marchiol
Successful real estate investors follow market trends closely so they know when to flip a property and when to hold it. Today’s market conditions, with higher prices and less inventory, encourages investors to keep their property for at least three to five years to earn a significant profit.
While owning the property and allowing the market to improve its value, investors should also improve their own cash flow by keeping the residence occupied. A few weeks ago we discussed the importance of choosing the right property. The next step is to choose the right renters.
The twin elements of selecting an appropriate property are due diligence and intuition. Those same elements are required when evaluating renters.
While determining the creditworthiness of renters has always been important, in today’s economy, the process may be a little bit more complicated. Instead of simply pulling an applicant’s credit report, a savvy investor will take the additional time to evaluate that report by going beyond the credit score. A low credit score does not necessarily mean that the potential renter is a bad risk. Landlords need to get deeper and find out whether the possible tenant has consistently had financial difficulty or has simply suffered because of the recession and the housing market crisis.
Plenty of renters in the market today are former homeowners who lost their homes to a foreclosure or short sale or because they made a bad buy. If they bought a home in 2005, 2006 or 2007, they may have found themselves unable to make the higher adjustable rate mortgage payments in 2008 and 2009. When evaluating potential tenants, be sure to look at their credit history prior to 2008. If they had multiple late payments consistently, they are probably a bad risk. But if the renters have been caught up in the financial crisis, they could actually be an excellent prospect now. For example, if the potential tenants have not made mortgage payments for several months during a foreclosure process, they may have been able to increase their emergency savings and improve their financial security.
In addition to checking the credit report of potential renters, property owners should have the prospective occupants complete an application which provides a job history and references. Call the references, but be aware that most people will offer their best possible references, not someone who will give them a bad review.
Check on the job history, too. While it is common to change jobs, be wary of a potential tenant who switches jobs every few months. Calling someone’s boss can give you a good idea of whether the person is responsible and reliable.
Tanya Marchiol, the founder and president of TEAM Investments, has proven herself adept in the real estate and investment arena. Tanya teaches her clients how to generate, grow, and maintain wealth even during economic downturns. She offers tailored guidance based on 12 years of experience and the individual client’s needs. With a presence in all 50 states her ability to connect with and reach a wide range of individuals is evident in her client roster, from professional athletes to young professionals; from Phoenix to Atlanta. For more information, visit http://www.TEAMinvestmentsinc.com. Follow her on twitter @TeamInvestment or Facebook @TeamInvestments