The Property Manager’s Guide to Tenant Selection
by David Crown
As a property manager, I’m in the business of eliminating stress and headaches for property owners. Since nothing can complicate the life of a property owner quite like an irresponsible or malicious tenant, tenant selection is of the utmost importance in this industry, and it’s something I’ve devoted a great deal of time to refining.
Just the other day, I was at breakfast with a client of mine who owns a quadruplex in the San Fernando Valley. He mentioned that one difference he’s seen since he hired my company to manage his property—a difference it took him a few years to notice—is that the tenants we’ve rented his units to tend to stay put. He had told me in our first conversation that he could always fill his units immediately, that finding new tenants was never a problem. I remember my immediate thought back then was that he probably wasn’t getting top dollar for his apartments, and his rent-controlled units were suffering because of it. Now, he said he recognized that keeping the units full was a different story. It got me thinking about the mark of high-quality tenant selection criteria: it doesn’t just fill your apartments. It brings in tenants who stay longer and pay more each month. In this article, I’ll lay out the best ways to choose tenants to rent apartments to.
Firstly, it’s crucial to run an in-depth background check on all prospective tenants. We use an eviction search that spans the whole country in scope, telling us of any evictions the prospective tenant has been subject to. State-limited searches are out there, and if you use one of those, you could easily wind up renting to somebody who’s been evicted a dozen times in other states. In the national search, a record or lack thereof gives us some picture of the tenant’s prior dealings with landlords. We then begin to clarify that picture by contacting their former landlords.
Now, any property manager worth their salt knows to call a prospective tenant’s last listed landlord and ask how easy or difficult they were to deal with. But think about this: if the most recently listed landlord on an application is still currently renting to the prospective tenant, and has had a terrible time dealing with them, isn’t it possible that they’ll tell you the tenant is great, in hopes of pawning the them off on you? I’ve seen it happen before. This is why we call not only the most recently listed landlord, but also the one before that, and sometimes even a third if listed. We ask all of these landlords if the tenant was ever late on rent, if the police were ever called to the tenant’s unit, and if the tenant ever in any way violated their lease agreement. The more thorough you are with your questions, the better.
This brings me to my final point: don’t favor fast over thorough. You might be looking at these steps and thinking, “How can he do all this and fill the unit fast?” But I answer that question with a question of my own. What’s more important to you as an owner: finding tenants who move in immediately or who pay higher rent for a longer time? Plenty of owners and managers boast of their ability to fill units at lightning speed, without considering the fact that they might be leaving money on the table. Don’t get me wrong; we work hard to maximize quickness and efficiency as well. But that’s secondary to finding tenants who’ll pay the rent your property is worth, and who will furthermore stick around for years to come. This leads not only to higher profits for owners, but to the peace of mind that comes with not having to advertise vacancies every year. Don’t turn your apartments into revolving doors for a constant stream of new tenants. Difficult tenants—who turn in rent late, complain about nonexistent problems, and in some cases wrongfully sue landlords—are not worth filling a vacancy fast. Quality tenants, however, are worth the added work and wait.
David Crown is the C.E.O. of Los Angeles Property Management Group, and has over twenty-five years of experience managing all types of income properties. A hands-on leader who has managed properties in 16 states, Mr. Crown has been asked to serve as an expert witness in property management matters, and currently serves on the Forbes Real Estate Council. He can be reached directly at (818) 646-8151.