Editor’s Note: If you own rental properties, you know the important of having quality tenants. Make sure you properly screen your prospective tenants as the quality of tenants will make or break your investment. Check out the following guest post for some tips.

Becoming a landlord that makes a good income off of a few rental properties (or more!) is the dream of many real estate enthusiasts. And it’s a solid dream.

There is a huge potential for making money in the rental market, particularly when rental rates across the US have been increasing between six and eight percent every year.

But being in the business of renting out properties does not come without significant pitfalls. One major cost that many new landlords aren’t prepared for is the cost of renting to a bad tenant. And that cost can be huge.

What Is A Bad Tenant & How Can They Cost You Money?

There’s a number of reasons why you might begin to consider one of your renters a bad tenant. From paying bills late to leaving behind severely damaged property, even the nicest people can turn out to be a not-so-great tenant.

Bad tenants are those who break contracts with you or simply treat you and your property with disrespect.

While having bad tenants wears on you psychologically, it can also wear on you monetarily.

Here are just a few ways that bad tenants can cost you more than expected:

•Paying rent late
If you’re a new landlord or you rely on rental payments to make the mortgage payments on your current properties, late payments can cause you to be short on the money necessary to keep your business running.

•Damaging property
Some tenants may leave behind extreme damages. While their security deposit should help cover those damages, it may not be large enough. Such damages will cost you in both time and money to repair.

•Additional payment avoidance
If you have a renter skip out on you without paying or you try to hold them to their rental contract to pay for exuberant damages, you may have to take the renter to the small claims court. This lengthy process may get them to pay up, but it will take a lot of time, money, and energy. Most landlords absorb the cost of a bad tenant rather than to bother with going to court.

As a landlord, tenant selection can have a huge effect on the future of your business. If you want to avoid the stress a bad tenant can bring to your mind and your wallet, it is important to refine your tenant selection process.

Understanding The General Tenant Selection Process

When it’s time to find a tenant for your property, you’ll want to work your way through the tenant selection process carefully.

Generally, that process will look something like this:

1.Check the local renting laws to be sure nothing has changed.

2.Write up tenant screen criteria for the property that outlines what you are hoping to find.

3.Advertise the rental.

4.Pre-screen applicants on the phone or via email before showing them the property.

5.Show the property.

6.Ask interested parties to fill out a rental application.

7.Verify the info on the application.

8.Run a background check.

9.Choose the right tenant for you; deny the others.

10.Get them into the property!

This process will repeat every time you need to find a new tenant for the property. With time, the process will become like second nature, and you will become good at getting a sense for who will be a good tenant and who will not.

But because that process takes time, we have some tips on how to be more discerning from the very beginning.

Tweaking The Process: Sifting For Great Tenants

While the general tenant selection process outlined above will help you find good tenants that are unlikely to become bad tenants, you can shore up your process even more by being even more careful in your selections.

After all, great tenants will save you even more money than good tenants!

Since learning how to choose the best tenants is a long process, these tips will help speed up your learning track. Use the following tips to choose great tenants that won’t burn a hole in your checkbook.

Tip #1: Follow Up With Previous Landlords

While a potential giving you the information about a previous landlord is a good first step to knowing if they are trustworthy or not, following up with this landlord will be even more telling.

Previous landlords can give you some simple information about a tenant that may be more telling than their entire application. They can let you know:
•If they pay in a timely matter

•If they broke any contractual rules

•Whether or not they received their security deposit back in full

This type of telling information can give you a clear image of if this client is “bad,” “good,” or “great.” Following up with previous landlords is essential for good tenant selection.

Tip #2: Use Comprehensive Checks

From background to credit checks, it can be confusing for landlords to know which information they should be checking when comparing and choosing between nice, potential renters.

Using a tool such as a SmartMove check includes necessary information like a full credit report as well as both local and federal background check information that you might miss if you run these reports yourself. Plus, the system makes it easy to organize and compare between potential tenants.

No matter how you choose to check out credit reports and background checks, be sure that you are thorough and know what you are looking for. Writing bad checks, skipping payments, and being taken to small claims court are all bad signs when it comes to renters.

Tip #3: Look For Long Term

Renters that are looking to stay in the same home or apartment for the next few years are more likely to develop a good relationship with both you and the property. Since they have a greater stake in the future of the property than a short-term renter would, they are more likely to treat it with respect.

If a potential tenant expresses that they like the property and would enjoy renting it for multiple years, this is often a clear sign of a great tenant.

The Wait Is Worth It

While it may be frustrating to feel like you’re holding a property vacant in the search for a great client, the wait is worth it. Renting a property out quickly to a bad tenant is likely to cost you more than it is to hold on to it for a few extra weeks while trying to find a great tenant.

Author Bio

Eric Worral has owned and managed rentals for over 9 years. Currently, he does marketing for RentPrep’s tenant screening service for landlords and property managers. He’s also the co-host of the “RentPrep for Landlords” podcast where he shares tips and insights on managing your rental properties.