Income properties make sound financial sense. Like other real estate properties and other investments, they can appreciate over time. But unlike your home or most of your stock holdings, your investment property won’t just be an asset that you hold to possibly sell later on. If your property is an income property, it will generate income in the form of rent payments on a regular basis, giving you a source of passive income that can really boost your wealth.
Of course, this whole thing only works if you have a tenant who will pay rent while living in your space. Furthermore, you’ll need a good tenant — because a bad one can wreak havoc on your space and on your financial situation.
Why tenant quality matters
Why is it so important to land that ideal tenant? Well, let’s start with the obvious: Not all tenants pay rent.
All tenants are supposed to pay rent, of course, but not all of them do. Some of them are unable or unwilling to pay the full amount. And when that’s the case, landlords lose big. It can be extremely hard to evict someone from a property, especially in areas with great renter protection laws, such as San Francisco and New York City. And when it comes to claiming back rent and other funds owed to the landlord, it can sometimes not even be worth the legal expenses to do so.
A non-paying tenant will destroy your income source. But other bad tenants can actually cost you money. What about hard-partying tenants who destroy the space? Lazy tenants who fail to perform basic upkeep chores and fail to report leaks and other things you need to know about? Criminal tenants who set up criminal enterprises on your property — enterprises that you can actually be liable for? All of these sorts of tenants can be disasters for you as a landlord.
That’s why it pays to get the right tenant. Here’s how to do that.
Finding the perfect tenant
Finding the perfect tenant for your space starts with advertising your property in the right way. If you don’t have lots of qualified tenants to choose from, you’ll be less likely to be able to choose a good one. And if your would-be tenants can’t find you, then you’re not going to have lots of qualified tenants to choose from!
So start with proper advertising. The vast majority of modern apartment- and house-hunters start their search online, so make sure that you’re using quality landlord software solutions to post online listings. Take great photos of your space that show off its size and the natural light that it gets. Use smart keywords in your listing so that your listing pops up with tenants search for features that your property offers — things like “outdoor space” and “washer/dryer.” And make it easy for potential tenants to apply for the lease. Set up a simple rental application online — good landlord software should let you do this, often for free.
Once your would-be tenants have found you, it’s time to narrow down your options. This is the point at which you need to be careful about screening out the bad tenants. Having a tenant is great, but even a vacant property is better for you than a disastrously bad tenant who doesn’t pay rent and actively destroys your space!
Use background checks and credit checks to ensure that you’re dealing with people who can afford the place, have good reputations with past landlords and creditors, and are in good standing with the law. Good landlord software should make this part easy, so don’t neglect these essential checks — they’re all that stands between you and the wrong tenant.
Once you have the right tenant, your real estate investment will be on firm footing. Protect your relationship with your tenant by fulfilling your duties as a landlord, and you should have a profitable space for a long time to come.