This article was posted on Saturday, Oct 01, 2016

When I look back at my first rental property purchase more than 10 years ago, I am amazed at my good fortune. Because there were plenty of times, as a part-time real estate investor with a full-time career outside of real estate, I tried to talk myself out of that first purchase.  And there were others who also tried to talk me out of it. 

Obviously, I didn’t listen. We made that purchase, and we still hold that property today. And, we have been purchasing rental properties ever since and have yet to sell a rental property.

Here I am, more than 10 years later, with a very profitable rental house portfolio.

I remember one thing in particular that I was guilty of weighing upon myself and others also: once you do get that rental property: 

How in the World Are You Going to Get a Good Tenant?

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We read about and hear all the horror stories about tenants and what they do to properties – damages, leaving in the middle of the night, abusing the properties, not paying rent. “How in the world are you, a first-time, part-time, new real estate investor ever going to know how to find a great tenant?”

I am here to tell you it can be done. It is done every day throughout the U.S. with real estate investors big and small. I will speak from my personal experience. Though I was hesitant at the beginning, I later found it’s not that hard if you do the right things.

That first rental property that we bought over 10 years ago is still a wonderful property for us. Believe it or not, we have had three sets of tenants in that property in that time, and the third is still there today.

We have only had two sets of tenants in over 10 years vacate that property. And in both cases they were very positive exits. They completed their lease obligations.

The first was the perfect scenario. The tenants lived with us for several years, saved their money and ultimately went off to buy their own home. The second situation was not as fortunate; they went through some marital difficulties and exited the property. But it wasn’t because of the property that they left, it was because of other reasons. The third set of tenants is there today and they continually tell us they are never leaving, which is fine with us.

The point is not to brag that we’ve only had three tenants in 10 years. The point is that this was the first rental property we ever purchased in Dallas. We didn’t know how to source or find residents, but somehow we figured it out. We have the results to prove it. Three key tactics I have learned for sourcing good quality tenants: 

No. 1 – The Power of the Yard Sign or Building Sign

This is incredibly simple and elementary. Maybe I am naïve and maybe the yard sign is particularly powerful in my market of Dallas, where I am a HomeVestors’ franchisee and a real estate investor. But I would like to think it’s pretty powerful everywhere. I think regardless of where you live, there are Realtor signs in yards, both residential and commercial, all over your city. It’s no different here in Dallas and no different for our experience as landlords.

That yard sign is incredibly powerful and incredibly cheap. It’s no more than the cost of running to your local home improvement store, purchasing that red and white sign, writing your phone number on it with a black marker and sticking it in the ground. It’s about as cheap a form of advertising as you can get. And we’ve found it to be incredibly powerful and successful. We sourced the first two tenants for that first rental property of ours off the yard sign. And we’ve never used that yard sign again on that property.

We used it twice to source two of the tenants and never had to go back to that. I will tell you why in a minute. But it is a truly powerful tool. It’s very cheap, and it’s very simple and very effective.

The point is that you shouldn’t get overwhelmed and think that, “Gosh, in order to source tenants, I have to go through extraordinary efforts and significant investment in newspaper ads or online ads.” Those are all valid and effective, but don’t let them scare you from what it actually takes to staff a property with a good quality tenant. It can be as simple as the yard sign. 

No. 2 – The Power of the Neighbors

Our third tenant was actually the neighbor who lived two doors down from that first rental property. As we have purchased properties, updated them, put renters in them and then as we’ve continued to manage and maintain them successfully, the word gets out.

 It travels up and down the street over the course of time as people talk. A lot of the time when you buy rental property it’s going to be in a rental market, or a rental street or a rental block where there are multiple landlords.

Tenants will talk, obviously, as they are out in the front yard or at the mailbox or at a social gathering. And word quickly travels as to who is happy with their landlord and who is not. If your tenants speak poorly of you, it’s going to be very difficult to occupy that rental the next time it goes vacant. Those tenants will talk to other potential tenants and word travels fast that, “Hey, you might want to avoid that particular property due to the landlord.”

In our experience, the inverse is what we were able to leverage and take advantage of. Our tenants talked among the other tenants around that particular property, and they talked positively. We took care of our tenants, we took care of the property, we took care of the yard, we did the proper maintenance, we were responsive, we were ethical, and we were fair.

By the time the second tenants moved out due to that divorce situation, the neighbor two doors down was calling us before they even vacated saying, “Hey, we’ve been on this street for over 10 years in this current rental, and we would now like to relocate into yours. We heard it’s coming available and we’re ready.”

That’s how we got the third and final tenants still there today. They were neighbors, unhappy with their current landlord situation, but attached to the street and their friends and wanting to stay there, except in a different house. Because of our performance with the previous two tenants, who were their neighbors, they were excited about the opportunity to move into our house.

So the yard sign got us our initial tenants, then our reputation got us our third and final ones. 

No. 3 – We Rarely Advertise a Property

This third tactic really developed as we increased the size of our portfolio and bought more houses and acquired more tenants.

Today we rarely advertise a property when it goes vacant. We don’t because all we do is circulate among our existing residents that we have a property coming available. We don’t need to do the yard sign any more. We simply send out an email or text describing the property we have, where it is, what it rents for and when it is becoming available. We have seen over time our existing tenants are our best source for new tenants. They even approach us, unsolicited, almost on a regular basis saying, “Hey, if you have anything available, or, when you do, let us know, because I have a friend who is looking for a property and would like to occupy” one of our properties.

So the yard sign was working great when we were new. The neighbors worked great for tenants and sources as we started to build our portfolio. And now that we are established, our existing tenants are our number one source for our new tenants. The point being: All of these three tactics: 

  • Yard signs
  • Neighbors
  • Existing tenants

They are free. They don’t take a lot of effort. And they produce a very high quality tenant.

As I look back, the one thing I was so concerned about as a new part-time investor – finding quality tenants – has really solved itself. It solved itself because we adopted a philosophy that we were going to take care of our tenants. 

Create a Productive Business Relationship With Your Tenant

We are not going to develop personal relationships with them. And I am not asking or telling people to do that as a new landlord.  Actually, I am suggesting the opposite.

You must be deliberate, professional, unwavering and committed to your business principles, however, that does not prohibit you from creating productive and effective business relationships with your tenants. They are our customers and we treat them fairly and ethically and we are responsive and professional. By doing that, they, in turn, help us to grow our real estate investment business by providing us not only their own tenancy, but also with new tenants as we acquire additional properties for our portfolio.

What we see over time is by taking care of these tenants, not only are they providing us new tenants but we have less vacancy and less need for new tenants. Because we take care of our existing tenants, they stick around.  And in the event we do have an opening, they are quick to find us a new tenant to fill it.

There is a great point often missed, especially by part-time investors or landlords who are not yet fully vested in their business. They can become lackadaisical and ignore a critical component of your real estate investment business. And that is customer service. You are no different than the owner of the local parlor around the corner, or the local dry cleaner or the local oil change facility.

Your reputation as a landlord – just like the reputation of any of those small business owners – is critical to getting new customers and maintaining customers – or tenants, in our case.

Don’t underestimate your role as a new or part-time real estate investor and how important your reputation is when it comes to occupying and successfully sourcing great tenants.  After all, these are your customers and they are a key to your success as a new part-time real estate investor. 

Kevin Guz is a residential real estate investor with over 10 years of investing experience based in Dallas, Texas. Kevin is the owner of a HomeVestors or “We Buy Ugly Houses” franchise and is also owner of the Clear Key companies which focus on residential real estate wholesaling, rental property management and self-storage leasing. He is a licensed real estate agent in the state of Texas.   Reprinted with permission of Rental Housing Journal.