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Finding the Right Tenants for Your Properties

Investing in rental real estate with a fixed-rate mortgage offers financial security in an increasingly unstable world, and there’s probably never been a better time to get started. With low interest financing and the fallout from the recent housing collapse, it’s possible, as Jason Hartman advises, to create a long-term independent income from your investments. But success in rental real estate depends on a steady flow of rents, and that in turn depends on finding and keeping good tenants.

Although tax laws for landlords allow property owners some deductions for temporary vacancy and loss of passive income, the key to maintaining a stable, positive cash flow is to keep those properties rented with good tenants that can pay the rent you need to charge. The profile of a desirable tenant depends on a variety of factors.

If you’ve purchased a property that has already been rented out, you will have inherited the existing tenants and their lease agreement. But purchasers of vacant properties will have to start the tenant search from scratch, and that means asking questions such as, how much rent can you charge? Will you hold tenants to a lease, rent month to month or follow some other arrangement? What’s the ideal tenant for this particular property, in this location?

The amount of rent to charge depends on factors such as the condition of the property, the rates of other rents in the area, and how much return you’re looking for on your investment. Your goals for the property play a role as well: do you want long-term tenants, or short-term renters, perhaps for vacations?

The Fair Housing Act prohibits screening out tenants on the basis of membership in several protected classes including age, race, disability and sexual orientation, but outside of those banned criteria you have choices about the tenants you’re willing to rent to. You can restrict rentals to nonsmokers, or people without pets, or stipulate only pets of a certain size. It’s legal to ask for credit and employment information, as well as references, to ensure that you’re making the right choice.

Because the rental market continues to expand, and rents are rising, a fairly large pool of potential tenants exists in most areas. Finding those tenants depends on strategies such as advertising, word of mouth and working with local housing agencies.

Among the numerous tax breaks available to rental property owners are deductions for advertising. Paid ads in newspaper classifieds or online property listings, expenses for flyers, brochures and other publicity, and even travel to conduct the business of advertising your properties can all be considered legitimate expenses related to managing the investment. If you choose to establish a relationship with local Housing and Urban Development authorities to accept Section 8 and other kinds of housing assistance, you can deduct expenditures related to that, too.

Rental real estate investing can open doors to new financial freedoms in retirement, or at any point in life. Finding and keeping the best tenants possible for your properties is a key to keeping that income stream flowing smoothly. (Top image: Flickr | RuTemple)

The Heroic Investing Team

 

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