Choosing the right tenant

[Kris-Ann Lagumen]

Hi, I am torn between the two: Please help! 

1st option:

-College student 

-needing her moms cosign to 

-she will be receiving college funds as her income-Shes relocating from CO for school here in Las Vegas

-her fiance who will be living with her is seeking job here in Las Vegas

-Has 1 small pet

-Enough funds in the bank

-Move in July 1

-Plan to rent for 1 year 

2nd option:

-Family of 3

-Accountant and stable job

-Enough funds in the bank

-WFH and no pets

-The only fishy thing is she wanted to move in ASAP with sight unseen. 

-Plan to rent for 2 years 

Both applicants has  no criminal records, great credit scores. 

[Eric Fernwood]

Hello @Kris-Ann Lagumen,

Based on the provided information, I cannot make a recommendation. You will need background information on both potential tenants to make an informed decision. You can obtain such information by using one of the tenant profiling services. Additionally, contact the last two landlords for reference checks.

You mentioned that one potential tenant has a pet. We have strict guidelines regarding the breed and weight of dogs allowed. In Las Vegas, it is common for the security deposit to be increased by $300/pet, plus a $25 monthly fee per pet. We do not allow cats, as they may cause significant damage to the property. We also do not accept smokers, as the cost of removing smoke residue after move-out can be substantial.

The lowest cost option is to work with a property manager with a track record of selecting reliable tenants for the first year. If the tenant performed well, you can take over management starting the second year.

Note: There are very few property managers skilled in selecting reliable tenants, and in Las Vegas, I know of only two.

In the rest of this post, I will discuss how to attract reliable tenants. Note that the information I will provide may not be applicable to existing properties. Why? Because the tenant segment willing and able to rent a particular property is fixed, there is little you can do to change this.

Property and Tenant Segment Relationship

Each tenant segment has specific housing requirements, and will only rent a property that meets all of their requirements. Below is an example of a segment’s housing requirement:

• Rent range: $1,500/Mo. to $1,850/Mo.
• Type: Single-family
• Configuration: 3+ bedrooms, 2+ baths, 2+ car garage, 1,200 SF to 2,100 SF
• Location: North of the river and east of Line Rd.

Every property has specific characteristics, such as the one listed below:

• Rent: $1,700/Mo.
• Type: Single-family
• Configuration: 3 bedrooms, 2 baths, 2 car garage, 1,500 SF
• Location: North of the river and east of Line Rd.

The characteristics of this property match the housing requirements of the example segment.

Note: If you buy a property that does not meet ALL of a segment's housing requirements, you are intentionally excluding this segment from renting your property.

Choose the Segment First

A rental property is only as good as the tenant who occupies it. For a reliable passive income stream, the property must be continuously occupied by a reliable tenant. A reliable tenant is someone who stays for many years, takes care of the property, and always pays the rent on schedule.

Reliable tenants are the exception, not the norm. Also, you will probably hold this property for the rest of your life so you will need multiple reliable tenants over the years.

The only way I know to constantly have a reliable tenant is to purchase a property that attracts a tenant segment with a high concentration of reliable tenants. And, work with a property manager skilled at selecting reliable tenants.

How do you identify a segment with a high concentration of reliable tenants? Property manager interviews.

Once you identify a tenant segment you want to occupy your property, determine what and where they rent today. Then, buy similar properties.

Using this approach has many advantages:

• Works in any location.
• Focuses on your financial goals.
• Maximizes your rental income by ensuring that your property is likely to always be occupied by a reliable tenant.
• Removes opinions and bias from property selection.