The Importance of the Tenant Selection Process

I know this is not a “green” topic, but it does strike a chord with me, for two reasons.

Many years ago I was a “risk analyst” at a screening company that processed apartment applications. I screened applications for hundreds of apartment communities and the company had clients in several states. When I first started in that particular niche, I was my happy-go-lucky trusting self. Eventually I involved into a savvy screener whose new attitude when processing applications was “you’re lying until I discover you aren’t.” I was a very good screener, and the clients loved me – they would even have applications held if I was out, only trusting me to process them. The company wasn’t as happy with me, tho, because I held applications to verify references, rather than making the required “two attempts” 30 seconds apart and marking the particular item “unverifiable” shrugging my shoulders and just closing out and making a recommendation regarding the application based on less information than was possible given a few more hours. This was a production environment, and the company unfortunately focused on quantity, not quality. But they guaranteed their recommendations, so there was no financial loss to the client should they make a bad recommendation.

Recently I also was working on a relocation project for the Port of Seattle for a bunch of homes and apartments that are being purchased as a result of the opening of the Third Runway at SeaTac. The new runway lines up with these homes and apartments, and the noise is going to be unbearable to people living in this area.

In preparation for relocating tenants in houses and also apartments, I toured rental properties for months, amassing enough data to be able to determine market rates for all sorts of properties. The apartments have it together, most are corporately owned and managed like an investment profit center. But many individual home owners are new to the landlord biz, since they really wanted to sell their house but couldn’t, and decided to rent it out instead.

I can’t tell you how many people I have coached on the proper rental screening process, trying to impress upon each of them how this was the most important thing to do, and to hire a professional firm to screen the application for them. The applicant pays for the service with their application fee. I think you can afford a couple of days’ lost rent to rule out the tenants who are going to skip out owing rent, or totally trash the house, costing the owner thousands of dollars to fix it back up to rent it again. You homeowners who are getting into the landlord business can’t afford to replace doors and patch walls and put in new carpets over and over again and still charge a competitive rent. It’s a lot of work, a lot of money, and face it, your former home is more than just a financial investment – if you lived there you have some emotional investment as well, and you are going to be upset and hurt when someone comes in and disrespects your property in that manner.

Someone out there in the world has written a book about this very subject. Realty Times has an excerpt of an interview with Don Conrad, investor and author of “How to Find That Quality Tenant.” and you can read it here.

You can listen to, or download the show archive MP3, here.

Conrad says,

The goal of the book is to give people a basic roadmap of the tenant selection process, a separate skill from just managing or investing. Most people don’t respect it. While you might be able to buy a property in a couple of days or a couple of weeks or a couple of months, you have to deal with that property for years. By selecting the right person upfront everything that happens is so much easier to handle. The tenant selection process is the most important skill, bar none, a real estate investor will need for the next five or 10 years.

You just might thank me someday for straying from “green living” to discussing something important about the increasingly scarce “greenback”. I am not a landlord, but I have met and talked with hundreds, and if this keeps you from experiencing a setback as a result of a bad tenant, I have done my job.

Added on 11/8/08
There was an article in Realty Times yesterday that also gives some good information and steps to follow if you decide to rent out your home. Read Can’t Sell Your Home? Why Not Rent it?

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