Choose Tenants Wisely

King Solomon had a reputation for wisdom. According to the Bible, he was responsible for the wise sayings in the Book of Proverbs and elsewhere – a collection of statements expressing the great importance of wisdom and prudent living.

“In the heart of the prudent resteth wisdom, and it shall instruct all the ignorant,” says Solomon in Proverbs 13:33. Prudence, as well as wisdom, lie at the core of Jason Hartman’s investing strategies. And one area where prudence is advised is in the screening of new tenants.

Changes in the housing market and the employment picture have put virtually unprecedented opportunities for getting the right tenant in the hands of nearly every investor. And screening potential tenants carefully for stability and a commitment to the property can save headaches later on and go a long way toward ensuring that they become long-term renters.

The typical profile of a renter in the past was a couple or family who were renting a house for a short while until they could scrape together the down payment on a house of their own. People with little interest in eventually buying a house generally opted for apartments.

Today’s market includes those people too, but renter profiles gathered by real estate analysts and the US Census Bureau reveal that other groups are represented as well. One of these, of course, is people who are more or less permanent renters. These renters typically have jobs and possibly families as well, but thanks to chronic low wages and a general lack of options, they’ll most likely never be able to collect enough money for a down payment, or qualify for financing to by the home.

Another growing group of potential renters consists of those who actually lost their homes in the great housing collapse. Used to living in houses, they tend to gravitate toward renting single-family homes rather than apartments. These renters most likely will see the house with the eyes of an owner, and take an active part in taking care of the properties. Some may have hopes of getting back into homeownership after a foreclosure or another kind of distressed property sale.

However disparate these groups may be, they all share something in common: an iffy credit history. Those who have just lost a house to foreclosure may be in bankruptcy or have a compromised credit profile. Younger workers may not have been able to build a credit history yet. And a growing number of renters are those who have recently immigrated to the US and haven’t been able to build a credit history. Potential renters all may have less than perfect credit histories as well, making it more difficult to determine if they can become reliable tenants.

Because the pool of possible renters continues to grow in most markets around the country, it’s important to consider which of them will work best for the property you have in mind. The right tenant is as variable as the markets themselves. But as changes in the economic landscape create new groups of renters, it’s possible to make the prudent choices about finding the best tenants for the income property you have in mind. (Top image: Flickr | @boetter)

The Solomon Success Team