In the end, it doesn’t matter how great of a deal you got on the property or how strong your projected cash flow and return on investment are. Without great tenants who pay rent on time and take care of your property, the equity, cash flow, and returns all evaporate into thin air.
So the question that naturally follows is this: How do you find great tenants for your investment property?
The answer is so simple yet so powerful. The quality of the asset you buy determines the quality of the tenant you are likely to get.
A better question to ponder would be this: What do excellent tenants look for in a rental property?
#1. School Quality
The quality of schools zoned to the property is a primary deciding factor for a majority of great tenants. Schools are extremely important to families and single parents with school-aged children.
Safety is our most basic human need and a powerful motivator for excellent tenants. One of the main reasons why your prospective tenant decided to spend more to lease a home (as opposed to an apartment) is to provide a safe environment for themselves and their family.
#3. Move-In Ready Condition
Your target tenant plans to take care of your property and has high standards of cleanliness and maintenance. If you provide a move-in ready home, you are communicating that you share those same standards.
#4. Proximity to Employment
As you look at potential properties, think about where your target tenants are likely to work and how close the property is to that area.
Most inexperienced investors subscribe to the myth that their investment properties just need to be “good enough for a rental.” Therefore, they purchase starter homes with cheap finishes and rent them to mediocre tenants for mediocre results.
Don’t do that; instead, purchase homes that have strategic upgrades that move the needle with excellent tenants: hardwood flooring, granite counters, stainless appliances, covered patios, etc.
#6. Appliances Included
If your property does not include a refrigerator and a washer/dryer, the tenant would then have to purchase those items, increasing their upfront cost.Remove the friction to make their decision easier by providing those appliances on the front end. Often your tenants won’t mind paying a little more for a property that includes all appliances.
#7. Neighborhood Quality
Neighborhood quality determines lifestyle quality. Think about the community you live in—didn’t the neighborhood amenities play a major part in your decision to live there? Wouldn’t your lifestyle be different in a neighborhood with running and bike trails, lakes, community pools, tennis courts, a gym, etc.? Quality tenants care about neighborhood quality. A community doesn’t have to have ALL those amenities, but the more the better.
#8. Access to Transport and Basics
Access to modes of transportation and basic necessities like grocery stores, restaurants, and shopping is very important because it affects other important factors, such as commute to work and lifestyle quality. When you’re looking at investment properties think about: how easy is it to get to the main highway/park and ride/public transportation? Are there basic services within easy reach?
If you purchase older properties, they will have older systems (plumbing, electrical, HVAC) that break often, inconveniencing both you and your tenant. Purchase newer properties instead. A good rule of thumb is no older than 15 years, less than 10 if you can.
#10. Rent and Price
Last but not least, your investment is ultimately a business decision for you, as well as your prospective tenant. Your tenant will be concerned with the rent, and you will be concerned with the relationship between the rent and the price you pay for the property.
Make sure the projected rent isn’t so high that it limits your tenant pool—or so low that it lowers the quality.