A People Business
By Norm Spivey, Author of Collect Rent, Don’t Pay It!: A Beginner’s Guide to Rental Property Investing
My assumption is many folks steer clear of rental property investing because it is inherently a people business. From working with a real estate agent while searching for a property, to the loan officer at the bank, owning real estate requires near constant human interaction. The most challenging people part of the rental business is developing a relationship with tenants. We’ve learned over the years, sometimes the hard way, how to communicate with tenants. Effective communication is critical from the moment they arrive as a prospective renter until they move out.
First and foremost, it is important to treat everyone with dignity and respect. My wife and I pride ourselves on offering clean, well maintained and affordable rental homes. She does the showing, lease paperwork and day to day management while I work maintenance and repair issues. We see ourselves as service providers. Tenants are paying us for a place to live; they are not just a stream for passive income. We cover the costs associated with home ownership and in return we expect tenants to treat the residence as if they owned it. My wife and I interact with our tenants with courtesy and professionalism. “Yes ma’am / No sir” are the norms. Most of the time, our tenants mirror the behavior right back at us!
How do you find tenants that will truly treat the home as their own? While my wife and I are of the general world view that people are inherently good, it doesn’t mean we throw caution to the wind. We screen and vet everyone! This starts during showing of the unit. My wife will voice verify prospects prior to making an appointment to show the property. During the appointment, she follows basic security rules such as checking in / out, remaining between the prospects and the exit door as well as other common sense measures.
Once a prospective tenant is interested in a property, we use both a standard rental application as well as a tenant screening service offered by one of the major credit reporting companies. The prospective tenant pays for the screening service as part of the application fee and the results include a credit, criminal and eviction history check. The screening service will assign an overall score and make a recommendation whether to accept or decline. Often there will be numerous prospective tenants who meet the “accept” threshold. It’s always tough but we contact each applicant and let them know their status. We have to choose the best qualified applicant based on their screening score. Once a candidate is selected, we refer to the contacts provided in the traditional application to verify current residence and employment. The selection process takes time but is probably the most critical step of establishing a relationship with a tenant. Fortunately, we’ve gotten it correct more than we’ve gotten it wrong!
So, you’ve got a new tenant, what’s next in this people business? The easiest way to summarize this phase of the relationship is, life happens. Air conditioners will break, typically on the hottest day of the year. Pipes will begin leaking on a Saturday night. Key to keeping tenants’ content in the relationship is to respond quickly to every maintenance request. For the easy stuff, I will take care of the problem as soon as I leave my day job or on the weekend. For the bigger issues, we have a list of service providers that usually respond quickly.
Despite the best qualified tenants, life happens, sometimes with adverse consequences. Tenants may lose a job or as we’ve seen during the past three years, there may be a global pandemic. Those circumstances are often beyond their (or our) control. Unfortunately, we’ve even had tenants pass away. Every case is different. Again, dignity, respect and compassion with just a touch of firmness will rule the day when those unexpected tough times happen.
Tenant screenings don’t reveal character flaws. I previously spent 24 years in the military so I don’t get surprised too easily. Nevertheless, we’ve seen some unusual stuff in our 15 years in the rental property business! We’ve had a hoarder, habitual slow payers and a couple of folks that just lived plain nasty. We even had one tenant that somehow allowed squatters into a residence and then abandoned it! I will emphasize again, these were the exceptions, not the norm. We’ve had more positive than bad experiences.
During the infrequent tough cases, we explain in clear terms that their behaviors are in violation of the signed lease agreement and could result in eviction. We explain the eviction process and help them understand that an eviction is a court ordered judgement that will follow them around for years and may hinder their ability to secure quality housing in the future. In every case, troublesome tenants chose to abandon the premises rather than face an eviction process. While we lose some money and time on these cases, the unit is cleared and we can turn the property for a new renter relatively quickly.
The bottom line is owning and managing rental properties is a people business. Establish a good relationship with tenants early. Use a screening process, know the local laws (reflect them in the lease) and treat people with respect. Most folks want to do the right thing. We’ve gotten it right more than we’ve gotten it wrong! Fear of taking the plunge into rental properties due to the inherent nature of a people business is understandable, but shouldn’t dissuade the aspiring investor. We’ve been fortunate to have some great tenants who we still keep in contact with after they move out. Don’t let the occasional bad apple turn you off from rental property investing!
About the Author
Norm Spivey hails from middle Tennessee and retired in 2019 from a successful 24-year Army career. He possesses extensive organizational leadership experience and continues to work in the defense enterprise as a civilian. He is a graduate of the National War College, a National Certified Counselor (NCC), investor and avid writer.
By his side on this remarkable journey is his wife of over 20 years and two sons. He and his wife own a successful small business, buying and managing rental properties. When he’s not working or writing, Norm enjoys spending time with his Family and all things outdoors. Check out his Amazon author page for great books on rental property investing and personal finance!