When I first bought my duplex, I received many comments (mostly negative) challenging the action of buying rental properties. Many comments, consisting of phrases like, tenants “destroy your property, it’s not as easy as you think, if it was so easy everyone would do it, how do you know how to find a new tenant?, I know a guy…blah blah blah, it’s too much work”, and more.
It was exhausting trying to make my case as to why investing in real estate made sense, but I guess it was the simple fact, that friends and family do not want you to take risks and lose your money. Either way the past is behind us now and I want to share with you our first year as landlords as well as our process for finding a new tenant for our rental unit.
Our first year as landlords
First, for those new to the blog (welcome!) my wife and I are relatively new landlords with only one year of landlord experience under our belt. We used to rent when we lived on the west coast and in Hawaii but we recently moved back to New Jersey and purchased a duplex to start our real estate investment journey.
We currently, live in one of the units of the duplex and have tenants renting in the other. Our first year as a landlord was amazing! Together my wife and I saved over $14,400 which helped pay 63% of our mortgage payment each month.
Our tenants were amazing and only reached out to us for a maintenance related issue twice. This was officially the easiest $14,400 we ever made. Unfortunately, they did not decide to renew after their lease expiration so our next challenge as a landlord arrived, finding a new tenant.
Steps to Finding a New Tenant
Many dread the idea of managing tenants and finding new ones if there’s a turnover for a rental unit. However, I don’t think it’s bad at all. Our goal was to find a tenant and have them occupy the unit immediately after our existing tenants left (after cleaning the unit of course). In fact we managed to do just that and our new tenant moved in a day after the existing lease ended, so we had zero days of vacancy! Cha-Ching!
Why we didn’t use a realtor to help us find a new tenant
We successfully did this without a realtor because of the screening process we implemented to find a new tenant. We chose to do it ourselves and not leverage a realtor for a few reasons. First, can you guess? Money! Realtors expect commission equal to one month’s rent, which in our case would have been $1,200! Second, by doing it ourselves we get to learn the process and ensure we are getting a qualified tenant.
Staying pro-active is the best way to go
Our process started out by asking our existing tenants if they were going to renew their lease 60 days prior to the end of the lease.
This pro-active notice was due to the lease which had terms stating “60 days prior to lease end, the landlord will ask current tenants if they plan to renew their lease or vacate the property and tenants will confirm or deny renewal”. This is something you may want to include in your lease if you’re creating one.
To our disappointment, we found out our existing tenants did not want to renew their lease for the year. However, instead of denying the renewal completely, they requested to go month to month. We declined since for a few reasons.
Why we avoid month to month leases and prefer yearly leases
As landlords, we prefer to stick with yearly leases instead of having tenants who rent month to month. We do this for a few reasons.
- Our Location
- We live in New Jersey in a beach/vacation area. If we rented month to month, our tenants could decide to leave after the summer, a time where we can charge significantly higher if we did a summer rental.
- Less risk of vacancy
- If we give the option of a month to month lease than we run the risk of lease termination during a month that will likely take longer to fill (like the winter months in December to February). People tend to move in the warmer months,
- Less management
- If a lease has a shorter duration you run the risk of higher turnover and more management. I believe tenants looking for yearly leases are likely looking for a place to live longer term than those who are looking month to month.
Now it’s time to dive into our process for finding a new tenant, and below is each step we took to find and secure a new tenant without having any vacancy.
1. Create your application process
Your application process can cause you headaches or ease depending on how you manage it. Luckily, we have the internet at our fingertips which allows us to automate the entire process.
With any application process, your goal is to qualify prospecting tenants in the most efficient way possible to ensure you do not have any vacancy. Making an efficient process will save you time and effort responding to prospecting tenants who do not qualify. The most efficient process is an automated process, which allows you to qualify tenants without your initial interaction. If prospecting tenants pass the automated qualification then it’s your turn to step in.
Before you begin to automate the process, you must create your Tenant Screening Criteria as well as your Tenant Rental Application.
a. Tenant screening criteria
Tenant Screening Criteria is a document that contains all of your requirements and qualifications a prospecting tenant must meet to occupy the rental unit. Creating your tenant screening criteria is one of the first steps you should take so you are prepared to speak with tenants as soon as your post your rental listing. The purpose of the tenant screening criteria is to ensure there’s absolutely no discrimination and everyone has an equal opportunity to qualify for the rental unit. As soon as your tenant reaches out you send your tenant screening criteria so they are aware of your requirements and know exactly why they do or do not qualify. Also in addition to the tenant screening criteria document, you should send them a tenant rental application.
b. Create your tenant rental application
After your tenant reviews your tenant screening criteria they have the option to fill out your rental application. Note, this part of the process is before the credit and background check and further qualifies the prospecting tenants. For example, someone who doesn’t meet all of your requirements/qualifications in the tenant screening criteria will unlikely to fill out an application or reach out explaining their reasoning for not qualifying.
We enforce that rule that states, a prospecting tenant cannot see the property without filling out the application in full. You may notice, in my rental app, I ask for the following:
- Past Rental History
- Previous Landlords
- Previous Rent
- Employment History and Salary
- Any evictions in the past?
- Credit score estimate
Once you solidify your tenant screening criteria and rental application it’s time to create the rental listing.
2. Create the rental listing
Again, thanks to the internet, creating a rental listing is easier than ever. Keep in mind, different markets prefer different listing styles. Some thrive on physical signs in front of the property other areas prefer online listings like Zillow or craigslist. In my area online listing services work the best.
In order to get the best outreach I decided to post my listing on every well known housing website which included, Zillow, Hotpads, Trulia, Cozy, Realtor.com, Apartments.com, Craigslist.com and the Facebook marketplace. Thankfully you only have to post on a few sites, like Zillow, Realtor.com to post on Hotpads, Trulia, and Apartments.com, but I still had to create a listing on craigslist and Facebook.
Tips for creating a good listing:
- PICTURES! – Have clean quality pictures of your rental. If possible, take pictures with a wide-angle lens to capture all of the space of a particular room.
- Clean description showcasing all of the features
- Clear Lease terms in the listing
- Move-in date – state the earliest day your place is ready to move in.
3. Respond to prospecting tenants and inquiries
After your listing is created, let the internet do the work for you. My unit was priced competitively and I started to receive inquiries within 24 hours.
As inquiries come in, depending on your process, responses will be manual or automated. I chose to do it manually since it was my first experience, I wanted to practice communicating with prospecting tenants and understand their common questions (which helped me improve my listing by putting the answers to the common questions in the listing description.
The next time I need to find a new tenant I will definitely automate the initial qualification because I was getting bombarded with requests about the listing. A great way to automate this process is through an automated google form. Your listing will have language like “in order to apply for this rental, please fill out the form at <insert google form url here>”. Tenant’s can click on the link in the description and fill out the form.
Your google form could ask the tenants your screening criteria questions. Keep in mind you want to keep this simple, 3-5 questions max, which could include:
- Name and Contact Information
- Do you (and your co-signer) earn at least 3 times the monthly rent each month ($4,500) before taxes?
- Is your credit score above 650?
- Were you ever evicted?
- Do you understand this is a no-pet policy property?
4. Qualify the prospecting tenant(s)
After prospecting tenants submit an application it’s time to qualify the tenants and ensure they meet your requirements. Simply, review the application and make sure all of the questions are answered.
My application does ask for a social security number, and that’s the only field I leave as optional since it’s sensitive information.
If the tenant qualifies to move onto the next step. If not, inform them that you cannot move forward with the application process because they do not meet your qualifications.
Remember: you cannot discriminate while selecting your tenant and everyone must have an equal opportunity to get the apartment. The way to ensure you’re not discriminating is to send your tenant screening criteria to every person interested in your rental.
5. Show the property
The next step after qualifying a tenant is showing the property. It is important that you qualify the tenant before showing the property so you are not wasting your time or others. Especially, if you have tenants currently occupying the unit, then it’s critical that you qualify the prospecting tenants before showing it. Nobody likes random people walking through their home/apartment so be respectful of your current tenants and only show the unit to qualifying tenants. Remember if you have current tenants, you must give them a 24-48 hour notice that you will be showing the property.
6. Ask for deposit to hold unit (optional)
If your prospecting tenant likes the property and decides to move forward on it, you can request a deposit to hold the property. This can be in the form of a check, cashier’s check or money order. I did not do this step during my last experience securing the tenant for my upcoming lease, but you certainly can.
7. Verify tenant info – Perform credit and background check
Whether or not you decide to require a holding deposit on the property, it is time to perform the formal credit check and background check. In my opinion, this is an absolute must! To perform this, use a third-party platform like Zillow or Cozy. The costs to perform the credit/background checks range from $30-$40, which I require the prospecting tenant to pay.
In addition to the credit/background checks make sure you verify employment and verify rental history. You can do this by calling the employer as well as the landlords or property management companies.
If you are renting to someone who does not have any rental history and a brand-new job (like someone fresh out of school) you can require a co-signer.
8. Receive security deposit and first month’s check (at least one in cashier’s check or money order)
If everything checks out and looks good, you can move forward with the prospecting tenant, and receive the security deposit and first month’s check. I require the security deposit to be a cashier’s check to ensure I am able to get the funds. The last thing you want to deal with is a signed lease and a bounced check.
9. Sign the lease and lease addendum
Once you receive the checks you can sign the lease with the tenant and complete your tenant search for your rental! Congratulations you have successfully found your next tenant with proper qualification and verification!
Summary
Overall the process for finding a new tenant for a rental unit is easy and straight forward. If you have a system/process in place it should go relatively smoothly. In total, I devoted 10-15 hours searching and securing my next tenant. (which includes building my application process, which I can now leverage moving forward). This unit will bring me $1,250 a month or $15,000 a year, which for 10-15 hours of work sounds pretty good!
If you have any questions about this post, please drop a comment below.“ `