Principle 2: Select the right tenantLast month I started a series of posts on Avoiding Burnout in Real Estate Investments.

Before I bought my first investment property my wife ran out and rented Pacific Heights on video and forced me to watch it. Perhaps you remember this movie: Michael Keaton plays a evil con-man who rents half of a San Francisco duplex from a naïve yuppie couple then turns their lives into a living hell.  Bloodshed and drama ensue.
 
Well it’s not a great movie so I won’t recommend that you sit through it, but I will share with you the film’s primary insight: if you’re renting a high-end property do a credit check the applicant before signing the lease.  Housing laws vary from state to state, but one trait that they have in common is that they’re designed to protect the tenant, not the landlord. If you end up renting to a family who destroys your house or refuses to pay the rent then you’ll surely spend a fortune and a lot of time and effort getting them out.
 
If you’re renting a lower-end property then doing a credit check on the applicant is less likely to yield any useful insights since applicants for inexpensive properties may not have established credit histories. You’ll have to rely on other methods of evaluating applicants, such as references from previous landlords and from employers. Call the references. Follow up.
 
And lastly, learn something about the applicants when you meet them (and yes, you should meet them – don’t leave this to your realtor). Do they arrive on time? Do they strike you as someone who will treat your property respectfully?
 
In the end you’ll have to trust your instincts. Having a vacancy is stressful, but it’s not nearly as stressful as having a unit occupied by a tenant who makes your life difficult. It’s not a good idea to indiscriminately accept the first applicant who waves some cash in your face, tempting though it may be.  Remember – housing laws are first and foremost designed to protect the tenant; they’re not designed to protect your rights as a landlord.  Renting your property to the wrong person is an expensive mistake.
 
But it’s not just about finding the right tenant.  It’s also about taking care of your tenant once he or she has signed the lease. Being mindful of the obligation that you have to the family who is living in your property is a moral/ethical issue, but just as importantly it’s a key business issue as well. Doing the right thing goes hand-in-hand with economic success. I’ll talk about that in my next post.