A People Business

My assumption is many folks steer clear of real estate investing because it is inherently a people business. From working with a real estate agent while searching for a property, to the loan officer at the bank, owning real estate requires near constant human interaction.

Probably the most challenging people side of the rental property business is developing a relationship with tenants. We’ve learned over the years, sometimes the hard way, how to communicate with tenants. Effective communication is critical from the moment they arrive as a prospect until they move out.

First and foremost, treat everyone with dignity and respect. My wife and I pride ourselves on offering clean, well maintained and affordable rental homes. She does the showing, lease paperwork and day to day management while I work maintenance and repair issues.

We are service providers. Tenants are paying us for a place to live. We cover the costs associated with home ownership and in return we expect tenants to treat the residence as if they owned it. Property management must be treated as a business or part time job rather than “passive income” as it’s often called.

We both interact with our tenants with courtesy and professionalism. “Yes ma’am / No sir” are the norms. And guess what? Most of the time our tenants mirror that behavior right back at us!

How do you find tenants that will truly treat the home as their own? While my wife and I are of the general world view that people are inherently good, it doesn’t mean we throw caution to the wind.  We screen and vet everyone!

This starts during showing of the unit. My wife will voice verify prospects prior to making an appointment to show the property. During the appointment, she follows basic security rules such as checking in / out, remaining between the prospects and the exit door as well as other common sense measures.

Once a prospective tenant is interested in a property, we use both a standard rental application as well as a tenant screening service offered by one of the major credit reporting companies. The prospective tenant pays for the screening service as part of the application fee and the results include a credit, criminal and eviction history check. The screening service will assign an overall score and make a recommendation whether to accept or decline.

Often there will be numerous prospective tenants who meet the “accept” threshold. It’s always tough but we contact each applicant and let them know their status. We have to choose the best qualified applicant based on their screening score. Once a candidate is selected, we refer to the contacts provided in the traditional application to verify current residence and employment.

The selection process takes time but is probably the most critical step of owning and renting properties. Fortunately, we’ve gotten it correct more than we’ve gotten it wrong!

So now we’ve got a new tenant, what’s next? The easiest way to summarize this aspect of rental property management is, life happens. Air conditioners will break, typically on the hottest day of the year. Pipes will begin leaking on a Saturday night.

Key to keeping tenants content is to respond quickly to every maintenance request. For the easy stuff, I will take care of the problem as soon as I leave my day job or on the weekend. For the bigger issues, we have a list of service providers that usually respond quickly. 

Despite the best qualified tenants, as stated, life happens. Tenants may lose a job or as we’ve seen, there may be a global pandemic. Those are circumstances beyond their (or our) control. Each case is different. Again, dignity and respect with a mix of firmness will take the day.

Tenant screenings will not reveal character flaws. After 24 years of military service I don’t get surprised easily. Nevertheless, we’ve seen some unusual stuff in our 13 years in the rental property business!

We’ve had a hoarder, habitual slow payers and a couple of folks that just lived plain nasty. We even had one tenant that somehow allowed squatters into the residence and then abandoned it! I will emphasize again, these tenants were the exceptions, not the norm.

In these unique cases, we explain in clear terms the eviction process and help them understand that an eviction is a court ordered judgement that will follow them around for years and may hinder their ability to secure quality housing in the future. 

In every case, troublesome tenants chose to abandon the premises rather than face an eviction process. While we lose some money and time on these cases, the unit is cleared and we can turn the property for a new renter relatively quickly.

The bottom line is use a screening process, know the local laws (reflect them in the lease) and treat people with respect. Most people want to do the right thing. We get it right more than we get it wrong.

Fear of taking the plunge into rental properties is understandable. There is a lot to consider. Establishing a good relationship with tenants should not be a scary proposition. We’ve been fortunate to have some great tenants who we still keep in contact with after they move out. Don’t let the occasional bad tenant turn you off to rental property investing!

Want to read more about investing and personal finance? Check out my book, Millionaire on a Worker’s Budget, Five Financial Truths to Build Wealth on sale now at Amazon!

The commentary provided in this blog is for informational purposes only and is not intended to be a source of financial or investing advice.

Use the links in the about section below to follow on social media or subscribe for emails to receive updates on the latest weekly blog at www.normspivey.com!