Quality Income Property Attracts Quality Tenants

Do you want to spend time with your family and at your profession while your money works for you?  Or do you want to fix toilets, paint walls and chase rent

Personal FinanceClient Profile:  Working professional.  High credit score.  Cash to invest greater than $15,000.  Other retirement vehicles in play including home equity, 401K and/or IRA, stocks, mutual funds and/or bonds. 

I’m about to say something here that has gotten me more negative phone calls, demeaning emails and upset readers than any other subject. 

Buy property that will attract quality tenants. 

Where I get into trouble is when I start describing what a “quality” tenant is. First, let’s get one thing straight.  I do not, in any way, shape or form advocate violation of any federal statue concerning fair housing.  Regardless of race, religion, marital status or whatever I’m looking for a tenant that will take pride in their home. 

To me a quality tenant in the Kansas City area will fit into many if not most of the following desirable traits:

  • Rent to income not exceeding 33%.
  • Has enough cash upfront to pay first month’s rent and full month’s rent security deposit.
  • Solid past concerning rental housing.  Check references where possible.
  • No sexual predator or violence charges in the past.
  • No drugs. Ever.
  • No dangerous animals.

A quality rental property to me will usually fit into most of these traits:

  • Rent range between $750 and $1,750/mo.
  • Either a 1-5 year old property or an older property with major expenses already accounted for.  (ie., roof, water heater, furnace, air, structure)
  • Neighborhood with 5% vacancy rates or below.
  • Within 10 minutes of highway.
  • Desirable school district.
  • Close to job centers and shopping.
  • Not on major thoroughfare.
  • Bedrooms and baths that are the norm for said neighborhood.

Both of those lists are off the top of my head and you can add to them if you like.  (Just leaving a comment would be welcome.) 

istock_000002137287xsmall.jpgPeople will jump on me immediately and say “Chris!  What about people who cannot afford $750/mo rent?  Do you not like working class people?”

The reason I generally do not like to recommend properties with lower rents is that they seem to find themselves in neighborhoods where future growth is limited (at best) and where tenants tend to be more transient.  And like it or not there is a direct correlation to the amount of troubles you will have and the amount of rent you charge. 

Don’t believe me? Take a chance.  Better yet, ask around. 

Now there are places and times and neighborhoods where I make allowances.  Usually on a case by case basis.  But if you fit the client profile above you are probably more concerned about finishing that project up at work so that you can get home to your son’s basketball game than you are hoping to get by your rental property so that you might catch the tenant home on payday. 

4 Comments

Filed under Property Management

4 responses to “Quality Income Property Attracts Quality Tenants

  1. Think areas and tenant quality don’t matter that much?

    A highly successful client went of on their own three years ago. They’re now edging towards bankruptcy because they thought they could do what I’d been doing for them the previous several years.

    Long story short — without exception, everything they bought, and it was literally almost three dozen small properties, is nearly or already upside down.

    Making price the central factor in an investment decision is the fastest way to a bumpy road.

    Chris is dead on right about this one.

  2. Great article and a really good website…Thanks for the info and keep up the good work, thanks from http://www.republicpm.com

  3. Chris: Your tenent profile reads like my homebuyer profile! In Houston, with our affordable home pricing, many many folks that fit your tenant profile have bought here in Houston in the last 5 years.

    We are going to see a flood of exploded ARM (can we call them ARMbo’s?) former homeowners become renters. Screening this type of renter should be interesting, as the REIT-owned apartments will turn them down based on FICO scoring or the foreclosure.

    Thank you for removing the fair housing induced rosy tint from my view of reality. Potential tenants can and should be rejected for not making the cut. The landlord has to be stout enough to be able to miss an income payment in favor of a prime tenant.

    In my management praxis, all my tenant problems have come from the pressure of overleveraged under capitalized landlords avoiding a rent-less month. You have started me thinking. Maybe I should have a sliding scale management fee based on tenant quality, because we all know that the cost of dealing with the bad actors is never made up from the always on time, no excuses gold-plated tenants.

  4. Jeff – Thank you for the comment. As usual, we agree on most issues.

    Keith – Thank you. Come back!

    Thomas – A sliding scale? I like it. 🙂

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