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SHOW NOTES FOR EPISODE 298: WHO IS THE PERFECT TENANT AND WHERE DO YOU FIND HIM OR HER?
Finding and keeping good tenants is key to your rental property real estate investing success. But who are these amazing people and where do you find them? In today’s podcast episode, Bill explores what the “perfect tenant” looks like and how and where to find him or her. His discussion also includes tips from his own unique tenant acquisition strategy called “Stealth Tenant Marketing.”
Good Tenants Mean:
- Less turn-over – longer term stays
- Rent payments on time
- Inexpensive turn-arounds
- Steady cash flow
- Less landlord headaches
Qualities of a “Good Tenant”
- Responsible – A tenant is responsible if they maintain your rental property and keep everything from furniture to appliances to walls and floors in good shape.
- Clean– The tenant is eventually bound to move out. What will the rental property look like after the fact? (are they a hoarder??) A good tenant keeps the property relatively clean and makes the turnover period and process easier (and less expensive) for you.
- Ability to afford rent – Generally income is 3 times the rent amount
- Pays rent on time – A good tenant is able to pay the rent in full and on time.
- Long term outlook for job stability – If they have a history of job switching or long periods of unemployment, you may find long periods of missed rent.
- Passes a background check – Run a credit and background check during the tenant screening process. Make sure your tenant can afford the rental property and that they do not engage in crime and/or any illegal activities. A person who has little regard for the law will also likely have little regard for your policies.
- Stable – When considering traditional rental properties, an ideal tenant is one that provides a stable occupancy rate.
- The stress quotient – I read the definition of “stress quotient” from The Book on Managing Rental Properties by Brandon and Heather Turner. This book is a great resource on anything “landlord” related.
On Finding That Perfect Tenant
- No tenant is going to be 100% perfect
- But only you can decide how close to perfect you want to be
- A lot depends on:
- Your desired involvement
- The community where your property is located
- Sometimes it may be advantageous to rent to a “less-than-perfect” tenant in order to full vacancies
- However, the more applications you have to choose from, the more picky you can be
Now that we’ve listed a few general qualities of good tenants, it’s time to to look at how to attract more and better tenant leads.
The Demographic Split
To make matters clearer, we’re outlining a generational breakdown beginning with college students and ending with baby boomers. This, alongside location and degree of involvement, can help you figure out who your ideal type of tenant is. It’s important to understand these generational differences because they reflect need differences.
Defining Your Perfect Tenant
- Start jotting down notes on what attributes your ideal tenant would have, such as
- Between 30-50 years of age
- Blue collar job
- $40K plus salary
- Had help job for last 7-10 years
- Drives this kind of car
College Students (Older Generation Z)
For the most part, Generation Z hasn’t started renting and buying property. However, the older segment of Gen Z, college students, are in fact renting property. According to 2017 data, there are around 18.4 million college students in the US. Many of these students are flocking into college cities and towns to study, and well – live. Investing in college towns is a savvy real estate investment strategy.
The best college towns to buy a rental property are Baltimore, Atlanta, and Philadelphia. In these cities, among other locations popular among students, you’ll almost always have a high and steady demand for rental property. What does this mean? It means that investing in college towns can also be a low-risk investment compared to other types of investment property.
In terms of the tenants themselves, college tenants can be less consistent, meaning that the turnover rate for college tenants is higher. Sometimes, you may even have students who are there for a semester as opposed to the entire year. So if you decide to invest in student housing, make sure you plan ahead with the tenant.
Additionally, college tenants may be more problematic. This is not to generalize and say that all college students do nothing but party and invite guests over, but a large portion does. So again, make sure to communicate with your tenant beforehand and explain major ground rules.
As to their specific needs, college tenants look for affordable rental properties, preferably close to campus and other amenities such as grocery stores and transportation stations. Can you offer this? If so, college tenants may be the type of tenant you should be targeting.
Millennials
“Millennials. Walking around like they rent the place.”
It’s a joke, but it speaks some degree of truth. Studies show that millennials, the largest demographic in the US, are going through life stages later than the preceding generations. And although a very large number of millennials are moving towards homeownership, many are still renting properties.
Today, millennials are mostly concentrated in cities like Chicago, Washington DC, Boston, Austin, Dallas, Philadelphia, San Francisco, and Seattle. More specifically, millennials live in neighborhoods near buzzing city and tech centers (where many high-paying jobs are), and entertainment and cultural hubs. Many are pursuing a career-oriented lifestyle that offers most amenities within easy reach. Millennials are also not hesitant to sacrifice larger single-family homes for smaller apartments that are closer to the lifestyle they strive for. So if you have what a millennial tenant is looking for, then they’re the ideal type of tenant for your rental property.
Gen X
“Gen Xers” are the members of the demographic that followed baby boomers and preceded millennials. Today, Gen Xers are in their late 30s to early 50s. Generation X doesn’t usually get a lot of attention, especially with everyone talking about millennials and Gen Z. They are also a smaller generation, so their overall effect on the real estate market appears to be less significant than that of other generations.
In terms of real estate property, Generation X looks for bigger suburban single-family homes that are affordable, are in good school districts, and that generally meet their family needs. A few popular cities among Gen X include Houston, Dallas, Charlotte, Washington DC, and San Antonio. It’s important to note that Gen X has moved to home-buying habits, rather than renting. So you’ll likely find less Gen Xers looking to rent.
Baby Boomers
Once the biggest generation of the US, Baby Boomers are mostly retired and concentrated in cities like Phoenix, Riverside, Miami, North Port, and Naples. At this point though, Baby Boomers have bought rental properties, so it wouldn’t be as common to rent out to a Baby Boomer as it would for any other generation.
Degree of Involvement
- How involved do you like to be with the tenants of your rental properties?
- Generally speaking, college tenants require the highest degree of involvement.
- If you don’t like to be involved, then Gen X and Baby Boomers are the ideal type of tenant for your investment property.
Who is the Perfect Tenant for Your Rental Property?
Overall, you have to look into what rental property you have, its location, and your desired degree of involvement with tenants to decide what type of tenant is ideal for your property.
If you own a rental property in a college town, and you don’t mind a high degree of involvement with your tenants, then your ideal type of tenant is a college student. If your property is near Dupont Circle in DC, then your ideal type of tenant is probably a DC millennial, and so on.
Once you determine your ideal type of tenant, it’s time to market your rental property to this group.
Where and How do You Find Your Perfect Tenant?
Rental Websites
There are endless online portals where you can advertise an apartment for rent, many of which are free. Many of these sites allow a tenant to narrow their search based on area, price and number of bedrooms and baths. Some great places to advertise a vacancy include:
- Zillow Rental Manager– Allows you to post a free ad as long as you have an account and the ad will automatically populate to other rental sites such as Hotpads and Trulia.
- Craigslist– Landlords can post apartments for rent in a specific area of the country with a free account. Photos of the apartment can also be included.
- Cozy- Cozy is a resource for landlords with many free features, including apartment listing. The listing will then populate to sites such as Realtor.com and Doorsteps.
- Socialserve.com– This site can help you reach the proper market if you’re interested in accepting government subsidized housing, such as Section-8.
- Apartments.com
- Hotpads.com
Social Media
Millions of people use social media sites like Facebook (especially Facebook Marketplace), Instagram, and Twitter. Create a Facebook page, an Instagram account, and a Twitter account for your company if you have one. Otherwise, use your personal accounts to let people know you have a property for rent.
You can list your property on Facebook’s marketplace, post a status update on your account, post a photo of the rental on Instagram, or send out a tweet to your followers via Twitter.
The Newspaper
Depending on the area of the country where your rental is located, the newspaper may be a viable option for advertising your rental.You will want to advertise your vacancy on a weekend, and on a Sunday in particular. This is when newspapers see the most traffic.
Rental ads in newspapers are tiny, so you’ll only have a few lines to make your property stand out. Use abbreviations for words like bedroom (BR) and washer/dryer (W/D) to save space. Placing an ad in the newspaper will cost a little, but it’s a good way to increase exposure for your property.
Local Bulletin Boards
Put up flyers for your rental in the community where your property is located. This can include colleges, grocery stores, churches, community centers, laundromats, and bus stops.
People will be passing by the flyer quickly, so use a bold headline and large color photographs to catch their interest. Include tear-offs with your contact information on the bottom of the flyer so people can grab them on the run. These tear-offs can also include the property address and a little information, such as the number of bedrooms.
Word of Mouth
Don’t underestimate the power of the spoken word. Let current tenants know you have a vacancy. They might have a sister, cousin, or brother who is looking for a new place to live.
Tell everyone you know that you have a property for rent. Always have flyers with you so you can hand them out if the opportunity presents itself. You can even offer a referral fee to give a greater incentive.
“For Rent” Sign at the Property
Many tenants move to a new property within their current area. Posting a for rent sign at your property will catch this type of tenant. Others passing by might be interested or might know someone who’s looking to rent in the area. Make sure a phone number can be clearly read from the street.
Pass the Responsibility to a Realtor
Brokers typically charge a commission of about one month’s rent for their services, and sometimes even more. This might be the most expensive way to advertise your property, but it can save you a lot of the hassle and headaches that come with dealing with prospective tenants yourself. Your property will also be listed on the Multiple Listing Service (MLS), which will increase exposure.
Respond Quickly to Prospective Tenants
You should respond to prospective tenants immediately. If you don’t call or email back promptly, another landlord or Realtor will.
You can set up a free Google Voice account which will assign you a new phone number that can be set to ring to your existing phone lines if you don’t want to give out your personal number. You can even set up a toll-free number for a small monthly fee, including voicemail, for your rentals using websites such as Kall8.com. Similar options exist for email.
Existing Tenants
Offer bonuses or rent discount for tenants that refer a good tenant that rents with you.
Stealth Tenant Marketing
I have talked about this concept before on previous podcast episodes.
In essence, I went into “Stealth tenant marketing” mode back back in October 2016 with my 22-unit apartment. I was at 68% occupancy and was determined to boost it to 90%. The only way I could see that happening, was by moving into the apartment building incognito as “just another tenant” and study the tenants, the market and and what it’s like to live in the building. My goal was to stay there as long as it took to get the occupancy up to 90% and to bring in the best tenants. Some of my efforts focused on:
- Print-out a Google Map of the Area, marking key potential tenant targets
- Develop a Lead Generating Machine (See Neal Bawa’s interview: 211: A Scientific Approach to Real Estate Investing – June 4, 2018)
- Generate a large volume of tenant leads online
- Establish a “pre-qualifying” phone interview
- Get online applications
- Scheduling showings back-to-back, all hours of the day/night/week
- Launching an Aggressive Online Marketing Effort
- apartments.com
- hotpads.com
- Zillow, trulia
- rentberry.com
- Building a Referral Network
- Real estate agents
- Other multifamily owners who don’t have studios
- Building Alliances With Important Community/Neighborhood Organizations
- Churches
- Community Assistance groups
- Rehab Facilities
- Establishing Relationships with Large Local Employers
- Give HR directors flyers, etc. to post on employee bulletin boards
- Offer special discounts
- Networking
- REI Meetings
- Meet-ups
- Kiwanis, Rotary, Chamber of Commerce, etc.
- Curbside Promos
- Signage
- Special Move-In Offers
- Other
- Tenant referral bonus program
To learn more about Stealth Tenant Marketing, check out the following episodes:
044: View From the Trenches – Stealth Marketing Update From Indy
Well, that’s it for today!
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