After a year of skyrocketing rental prices, the growth rate has dropped to its lowest level since 1Q 2021, according to the National Association of REALTORS®’ January 2023 Commercial Insights Report. Chicago ranked #6 for cities with the strongest 12-month absorption rate for Q4 2022. A cooling rental market is good news for renters, but landlords must work harder to find and keep quality tenants.
Finding quality tenants takes more than placing an ad and waiting for a response. A careful vetting process is essential. If you plan to do the screening yourself, always do a background check and don’t skip the references. Without thorough screening, your dream tenant might be a nightmare you never expected.
Qualities to Look for in a Tenant
While there is no crystal ball to know if an applicant will be a good tenant, there are characteristics that signal a strong prospect. It begins with a detailed application that includes employment history, income, and credit and rental history. Use this information to verify the tenant’s qualifications and identify any red flags. When verifying application information and rental history references, inquire about the following:
- Pays rent on time. A history of consistent and timely payments is a strong indicator of a reliable and financially responsible tenant.
- Treats the property like their own. Such tenants are respectful of the property, comply with lease terms and regulations, and are mindful of the unit’s condition.
- Communicates maintenance issues. By promptly bringing issues to the landlord or property management company’s attention, tenants help prevent small problems from becoming larger, more expensive ones.
- Maintenance level. High-maintenance tenants can be demanding and difficult to please, often requiring constant attention and assistance from the landlord or property management company.
- Adheres to the unauthorized occupancy policy. Tenants who allow someone to live with them who isn’t on the lease may be more likely to violate other lease terms and regulations.
- Keeps the property clean and well-maintained. Tenants who regularly clean and stay on top of basic property maintenance and repairs demonstrate respect for the property and its owner and help maintain the property’s value.
- Has a history of lease renewal. Long-term tenants represent less cost for the owner. So, while there are many reasons a tenant chooses not to renew, someone with a history of renewals suggests the previous landlord was satisfied.
- Carries renters insurance. Having renters insurance indicates that the tenant is aware of the potential risks of living in a rental property and takes steps to protect themselves and their personal belongings.
The Tenant Screening Process
A thorough screening of tenants requires time. One of the big advantages of using a property management company is offloading the tenant screening process. An experienced property manager knows what to look for in a tenant and can easily identify potential red flags. Professional property managers have the mechanisms to conduct background and reference checks. These checks may not turn up all problems, but they will help you avoid tenants with a bad rental history.
Background checks (and applications) may reveal concerns such as past evictions, a spotty work history, criminal background, pet owner, no rental history and other information that may cause a landlord to refuse the applications. While there are valid reasons to deny a tenant, it may be worth asking follow-up questions. For example, is the lack of rental history due to living with family during the pandemic? Further, landlords must be mindful of not violating the Fair Housing Act or any local or state landlord ordinances. Read these 15 legal reasons to deny a tenant and invalid reasons that violate the law.
Covering the Legalities
A good property management company will help you with the legalities of the lease agreement. Because they handle many properties, they know how to write a comprehensive lease agreement and how to enforce it. The lease agreement legally binds you and the tenant, so make sure it protects you and sets forth the rights and obligations of you and your tenant.
Collect the security deposit, rent, and pet deposits when the lease is signed. If the tenant does not have the deposits and rent prior to signing the lease, this can be a red flag. These deposits are for your protection, don’t defer them.
Collecting the rent can be your favorite activity as a landlord or your least favorite, depending on your disposition and your tenants. For most landlords, it is a chore that keeps you anchored to your property. The good news: you don’t have to knock on doors anymore; technology makes it much easier. These methods work with most tenants:
- Collect rent online through a variety of payment processors
- Set up a drop-off location
- Collect rent by mail
- Collect rent in person
- Have a property manager collect the rent
If you have problems with a tenant or the rent is late, you will still need to give them a call or knock on the door. Realistically, these tenants should not have made it through your screening process. If it happens more than once, consider talking to a property manager.
Identifying good tenants is only half the landlord challenge. You also want to retain them. A good tenant retention rate boosts your profit and reduces your workload and stress. The key to tenant retention is knowing your tenants and meeting their needs. You know that a young couple expecting their first child will soon be looking for a second bedroom. Show them what you have available in a two-bedroom apartment that may be coming available soon. Accommodate desired upgrades and other reasonable requests for good tenants. Getting to know them enables you to meet their needs and keep them renewing long-term.
How Property Management Companies Improve Tenant Retention Rates
A professional property management company can support your goal of retaining good tenants by taking steps to keep tenants happy and renewing their leases. Consider these best practices from GNP Realty:
- Keep rental rates fair and consistent. Tenants talk to each other. Fair and consistent rental rates (based on size and amenities) prevent tenants from feeling overcharged or mistreated.
- Incentivize lease renewals. Even in a tight rental market, offering incentives such as rent discounts, waived fees, or other perks to retain a tenant can be cheaper than the cost associated with finding and vetting a new tenant.
- Be responsive and maintain good communication. Respond promptly to tenant inquiries, concerns, and maintenance requests to build trust and maintain positive relationships with tenants.
- Prioritize maintenance. Quickly and effectively addressing maintenance issues ensure tenants live safely and comfortably, which is the most fundamental responsibility of a landlord. Failure to do so will cause tenants to move.
- Be flexible with good tenants. Being flexible and accommodating reasonable requests helps create a positive relationship, which can motivate tenants to stay.
- Take tenant feedback seriously. Actively solicit and consider tenant feedback to identify and address problems that may cause tenants to leave.
- Facilitate community building. Create an environment that encourages tenants to engage with one another and fosters a sense of community that tenants will want to stay in.
How GNP Realty Can Help
Screening and retaining good tenants calls for expertise in the current rental market and experience with leasing and tenant management. GNP’s property management team has extensive experience in the Chicago metro rental property management sector. We manage both residential and commercial properties and are an Accredited Management Organization. Give us a call today to learn more about how we can help you verify and retain good tenants in today’s increasingly competitive rental market.