Angela Valdez, owner of Lantana Property Management, provided most of the content for this article. We have worked with Lantana for many years, and they now manage more than 250 of our clients’ properties. Thank you, Angela, for contributing to this article.
The best way to avoid tenant problems is to avoid placing the wrong tenant in the first place. Over the past 17 years in the investor services business, I have worked with many property managers. Of all I’ve worked with, only two have consistently had the skill to select tenants who stayed for years, paid rent on time, and took care of the property. The ability to screen out questionable tenants starts with the information the property manager requires from every applicant.
Information Required From Applicants
The screening process starts with a government-issued ID and proof of income. For employed applicants, the property manager requires recent pay stubs. For self-employed applicants or independent contractors, the property manager requires three months of bank statements, including all pages, along with the previous year’s tax returns.
Applicants must also complete an online application that includes current and previous addresses, employment history, pets, dependents, and whether they have ever had an eviction or bankruptcy. The application also requires a Social Security number and date of birth so the property manager can run credit and background checks. Additional screening services are often used to cross-check IDs and income documents, identify counterfeit pay stubs or other fake documents, and review criminal history or other warning signs.
Tenant screening is one of the most important responsibilities a property manager has. The review goes beyond income. Property managers also look at debt levels, payment history, collections, late payments, and how recent or frequent those issues are. Together, these details help build a clearer picture of the applicant.
Key Applicant Qualities
The biggest things property managers look for are responsibility and stability. Strong applicants pay their bills on time, avoid excessive debt, and have a stable employment history. Property managers also like to see a long rental history at previous homes because it often indicates the tenant is likely to stay longer. Long-term tenants reduce turnover costs and vacancy.
Not every strong tenant has perfect credit. Applicants with average credit and a solid rental history often become excellent long-term tenants. On the other hand, applicants with very high income and excellent credit may be more likely to buy a home in the future, which can make them more temporary renters.
Common Mistakes
One of the biggest mistakes property managers see is owners wanting to “wait and see” after already receiving a qualified applicant. They delay approval, hoping a stronger applicant will appear, only to watch the qualified applicant rent another property. In many cases, that leads to an unnecessary vacancy because the better applicant they expected never materializes.
Another common mistake is failing to adjust expectations to current market conditions. Applicant quality changes with the market. Some seasons bring a large pool of highly qualified applicants, while other periods produce more average applicants. During those times, it can make more sense to work with an applicant who shows potential and reduce risk with a higher security deposit rather than leaving the property vacant for too long.
Another major mistake is approving high-risk applicants because the owner feels pressure from the mortgage payment or carrying costs. Even when property managers strongly advise against an applicant, some owners still move forward because they need rental income quickly. Those situations rarely end well.
Trusting an Experienced Property Manager
One of the biggest pieces of advice experienced property managers give owners is this: trust the process and allow the property manager to do the job they were hired to do. Strong property managers usually spend years refining their systems through experience, mistakes, and lessons learned from past situations.
At a good property management company, when a problem occurs, the team reviews what happened, how it could have been prevented, and where the process needs improvement. They then build those adjustments into the system moving forward. That is how strong management systems develop over time.
Some owners become too involved and unintentionally disrupt the process, creating delays, inefficiencies, or additional problems. The strongest working relationships usually happen when the owner and property manager trust each other and allow the systems already in place to operate as intended.
Summary
The ability to consistently select reliable tenants who stay for many years, pay on time, and take good care of the property also depends on the tenant segment the property attracts. Some tenant segments have a much higher percentage of reliable tenants than others. Keeping a property occupied by reliable long-term tenants requires extensive research into tenant segment behavior. This is something the Fernwood Real Estate Investment Group has spent years developing through processes for selecting properties that attract reliable tenants.
In a future article, I will discuss how we evaluate and select property managers since property management quality has a major impact on long-term investment performance.