In this episode, Robert talks to Liz Faircloth about screening potential tenants and red flags to look out for.
Robert Leonard:
Given how many deals you guys have done, and how many units you currently own, you must have learned quite a bit about finding good tenants and how to screen them. Once someone buys their first rental property, what is the best way for them to find and screen potential tenants?
Liz Faircloth:
There are a lot of strategies out there in knowing the profile of your tenants. People get very focused on the property and price, but we don’t often think about who rents there. Who’s the common tenant? You need to know those things before you buy a building. You need to know the type of customer you’re serving. We bought a lot of property in Trenton, New Jersey, which is an urban community, high-C to B-minus neighborhood. At the time, we felt like the property would turn, and we knew where we were getting ourselves into, but we needed to know who our tenant base too. Trenton’s a different environment than Princeton, New Jersey, if you will. I’m not saying it’s not accurate. So, you need to know who you’re serving, and you need to know how to best serve them and what tenant profile is going to work for your property. With ours, we were too nice, at first. We didn’t know. We had standards, but we didn’t hold on to them. We had it all written down, but we’d meet someone, and accept when we hear people’s stories. My background in social work added to that. I think we got kicked in the teeth a couple of times in the beginning because we were empathetic to people’s stories and needs. Then we learned to hold to our policies, procedures, and rental criteria. We don’t budge off of that. Over the years, once we stuck close to what our rental standards were, that became really helpful and important.
As you buy assets in different class neighborhoods, you’re going to see different types of tenants because they’re attracted to that building in a different way. The different classes of assets do tend to have different types of tenants, so you need to know what you’re getting yourself into. I think that’s the number one thing that people don’t think about. We can say Class A, Class B, or Class C, but that doesn’t translate to what type of tenant is going to typically rent there. When you take over a property, large or small, you’re going to have a transition time, right? There’s a new sheriff in town, and, most of the time, folks are selling for some reason. We know that it’s not like they’re selling because all their tenants are perfect, and everything’s running wonderfully. There’s always an issue. In every asset we’ve ever bought, there was always something that the owner did not tell us before closing. You need to have a transition plan, whether it’s a duplex or a 10-unit or a 100-unit. The transition plan becomes even more important the more units you have. In that transition, you need to teach tenants how to treat the property, define what the standards are, and then be able to communicate those to the tenants. You’ll see who falls off and who’s not able to keep up with your standards, and so on.
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