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Article posted: 4/15/2014 12:01 AM

Q & A With America’s Real Estate Professor: Finding Good Tenants

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By Zillow

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Finding Good Tenants

Q. Recently my wife and I bought our first duplex. Our plan is, after moving, to rent out the townhouse that we currently own and reside in. My question to you is how do we find good quality tenants? I've heard many horror stories about bad tenants, but is there a way to increase our chances of getting a decent tenant that will pay rent on time and will not trash the town house? Any advice would be much appreciated. Best regards, Art Issakhanian

A. Yes, there absolutely are ways to increase our chances of getting good tenants and avoiding damage to your property during their tenancy.

In order to get good tenants, you need to provide prospective tenants a very fair deal on your rental property. Get the property in good shape so it shows well, and ask for reasonable, within market rate rent. By doing this, you will have lots of people interested in renting your place. With a big pool of potential tenants, you can pick one that seems like a good fit.

I’d suggest reviewing their credit history and report, calling past landlord references and verifying their employment. You should also ask if they plan to keep any inoperable or commercial vehicles at the property, do they play any loud music, musical instruments or do they make other loud noises that might be a nuisance, will they operate any business or daycare from the property, store any inventory or hazardous chemicals, do they smoke, have pets, who and how many people will be living at the property. All of these issues, which you might want to note in your lease, will give you a better indication of the nature of your tenants. Then you can make a decision on who is the best fit for your property.

I also suggest that you treat tenants with respect, take care of broken items or plumbing issues, and minimize rent increases, if any, for good tenants that are reasonable and take care of your property.

You’ll make the most money by keeping your tenants for the long term, so treat them well and they will stay. Good luck!

Speculating on Real Estate

Q. My spouse and I are looking to invest in Houston. The market is hot there, and Houston, Austin and Dallas were named boom towns by Money Magazine and Forbes recently. What are your thoughts on investing in Remington Ranch, Houston? It's minutes to Houston International Airport, near Spring, Texas – which apparently has a good school district and is near the Exxon and Chevron new construction projects. Best, Cathy, Washington, D.C.

A. I love D.C. and spent the first 25 years of my life in Annandale/Arlington! In my opinion, and you may disagree, you are talking about speculating on a real estate investment. Speculating is when you buy something in hopes that it will go up in value. Investing in real estate is when you research the rents, expenses, area and condition of property and buy a property that is cash flow positive. So the rents, less all the expenses and mortgage, provide you a return on your invested cash equity.

Many properties are cash flow negative and could take years or decades to turn positive. And that’s no way to invest. So you just have to make sure that any real estate investment you acquire will pay you a decent cash-on-cash return. Find more of my thoughts about this on the Zillow Blog. Search for my name and read the post called "Real Estate Investing, Why Cash Flow is King" – as well as other posts like "How to Pencil Out a Real Estate Deal" or "Proof Positive: Invest in Cash-Flow Properties."

Separately, I’m not a fan of buying properties far from where you live. I suggest stay within your driving distance – 1 hour – and manage them yourselves. You’ll have better tenant relations and can handle issues. Property managers only get paid $75 to $100 per month per property, and that’s not a lot of incentive to do a great job for you. You, on the other hand, can and will do a great job to keep your place rented and expenses low – and that is how you make more money!

Either way, just realize that real estate investing is hard work, time consuming, and can be stressful. It’s not all flowers and on-time rent checks each month. The better you treat your tenants, the less hassle you will have and the more money you will make. Thanks!

Leonard Baron, MBA, is America’s Real Estate Professor®. His unbiased, neutral and inexpensive “Real Estate Ownership, Investment and Due Diligence 101” textbook teaches real estate owners how to make smart and safe purchase decisions. He is a San Diego State University lecturer, blogs at Zillow, and loves kicking the tires of a good piece of dirt! More at ProfessorBaron.com. Email your questions to: Leonard@ProfessorBaron.com

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    Q & A With America’s Real Estate Professor: Finding Good Tenants