There’s a conventional wisdom out there that higher-end properties bring good tenants and lower end properties bring problem tenants. In my experience, this isn’t necessarily true. Ask most buy-and-hold investors about what makes a good tenant and many will respond by recalling a specific tenant that they wish was the model for all their properties.
In my case, my example was in one of my most inexpensive properties; the tenants were a young family with no credit and not a lot of resources, but their references checked out and I rented to them, more or less, based on gut feel. And they were the best tenants I ever had: took great care of the place (flowers in the front yard), made minor repairs on their own and never were late paying the rent. Plus, they were a pleasure to deal with.
Your goal as an investor is to create a portfolio of properties filled with this kind of tenant. Identifying, attracting and retaining them is one of the most important factors to ensuring your success as a real estate investor. Getting the wrong tenant in your property is expensive in two ways: not only does it cost you money in repair, vacancies, and lost revenue – it can also cost you dearly in terms of investor burnout. Get a bad tenant or two and you’ll be ready to throw in the towel in no time, but if you develop a knack for renting to the right people then on the average month managing a property is as easy as cashing the rent check that shows up in your mailbox (on or before the first of the month!)
So what happens when you get a bad apple? Well don’t sit on your hands; take care of the issue. What follows are some fairly broad generalizations, but that’s how I conceptualize problems. Most of the situations I have dealt with fall, roughly, into these three categories:
| Type |
Key mitigation strategy |
| High maintenance: These tenants can be overly demanding and can sometimes be rude – especially when dealing with your Realtor or with your maintenance support. In my experience I’ve run into this type of tenants in units with higher rent and in more upscale neighborhoods, but they can pop up anywhere. |
Set expectations early, and when problems arise handle the details yourself. It’s important to shield your support team from this type of personality. Tenants come and go but your relationship with your support team is for the long term. Real estate investing is all about building relationships. You can turn a high maintenance tenant into a good one with the right level of initiative and leadership. |
| Flaky/irresponsible: Undependable, pays late, sloppy with property upkeep. |
Establishing a zero tolerance for late payment early is critical in managing this type of tenant. Many tenants are immature and simply don’t understand the consequences of being evicted from a property, so hitting them with a curtly worded Pay or Quit letter sometimes can work wonders. |
| Belligerent/destructive: Doesn’t pay, tears up your property, difficult to deal with. Upsets the neighbors. You may suspect illegal activity. This is the type of tenant that makes you want to give up investing. |
We all make mistakes. And when we do it’s critical to own up early and admit it. You goofed. You shouldn’t have rented to this guy. Now you have to get him out. |
In all of these cases the key is action. Good relationships don’t happen automatically; you have to work at them. But if you establish a good relationship with your tenant early in the process then it’s easy to maintain, and will help to make your investing profitable and less stressful.
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