I manage over 20 properties right now and spend less than 4 hours a week and am even reducing that. Right now is a great time to own rental homes for both cash flow AND appreciation. When I ask rental property owners to explain their asset most will start telling me about the physical property. I disagree. Your biggest asset is your tenant. Because finding a good tenant is so important I want to talk about some of the high risk tenants that I have encountered. You have to be very careful here as these could be protected classes and I am not saying not to rent to anyone on this list. I am simply pointing out that these could be a higher than average risk for you as a property owner. Please do not discriminate against a protected class.
Top 4 High Risk Tenants
1) People that have never lived together
You will normally see this with younger people. Often times they have recently left home and need roommates to help cover some of their costs. This is exactly what I did. The biggest problem here is that people that have never lived together soon learn that they can’t. You know what I am talking about; one is a slob, one stays up partying too late, one does not cover their portion of the bills, and this list can go on and on. Trust me if they don’t get along and one moves out you will soon find yourself with a vacancy and possibly one that is returned in less than desirable condition.
2) Recent marital change
Again be careful here as this is a protected class. As we know many marriages end in divorce and often times it is not pretty. If a divorce is going to happen it may happen sooner than later so a recent marriage can be risky but the biggest issue here is a recent divorce. One of two things could happen with a divorce and one of the two moves into your house or apartment.
- They don’t get along and the ex spouse comes over causing problems after they have had a few drinks. The next thing you know the neighbor is calling saying the cops are at your house again.
- Or even worse, they decide to get back together. J I know I’m so harsh. When they get back together what do you think is going to happen?… that’s right, you have another vacancy.
3) Self Employed
I hate to say this since I am self employed but the fact is most small businesses go out of business. If you are reading this you don’t fall in that category. J Have you ever rented to a contractor or handyman? I have several times with less than desirable luck. Most small business owners are great at what they do but aren’t so great at running a business. They don’t understand how to generate business and how to keep the income coming in. They get busy doing what they do and when it is done they don’t have anything to do. Make since? If they do run their own business be sure to ask them questions about how they generate leads and how they keep their cash flow positive. Also ask for a business card to help verify that they are really not self unemployed.
4) Recent job change or recent residents change
This is especially true if there has been more than one in the last 24 months. This is an indication of instability meaning unstable in your rent also. Often times they will not disclose many jobs or resident changes on the application which is why calling the last two landlords and asking how long they have lived there is important. Also, many times recent addresses will show up on the credit report so you can use that to verify missing information.
Please use this information for what it is worth. It is not a reason to deny a prospect but is a good way to raise red flags and to be extra careful with the screening process. Good luck!