First, let’s begin by defining Art Verses Science. In the business world, a science is theoretical and of the belief that it can be quantified or proven. An art is something conceptual, of which the holder would believe the very art itself is enough proof. So, a science is something that can be placed into a mathematical formula or repeated based on like conditions while an art is something that is more in the belief and the eye of the operator. Many times, we look at trades as being from an art. You may here a statement of a great trim carpenter or cabinet maker, he’s an artist.
Many larger real estate companies us scientific methods to select tenants. They use minimum credit score and provable income verification. These would both fall under the category of a scientific approach to tenant selection. A credit score can be easily pulled and verified with the correct information and forms and will give a “current snapshot” of the financial stability of the prospective tenant. Basing this on number alone will not give you an entire story on a person’s overall situation but again will give a static snapshot. Income is not a constant either. A tenant can have a verifiable income of let’s say $750.00 per month upon the time of filling out the paperwork and by the time of move in having lost that job and working somewhere for nearly half the rate of pay. Again, monetary payroll is fluid as well. This is not a constant and is only good for the time of the paper it is verified on.
In contrast there are smaller what we will refer to as mom-and-pop landlords. These type of property owners rent based solely on emotion. Many of them owe money and rent to the first person who has full months rent and deposit. Many of these type landlords will go with what they refer to as a gut feeling. They have met the prospective tenant and liked them, so they put them into their newly remodeled home and away we go. This would be an example of someone solely relying on the “art” of tenant selection. Though I personally do not believe tenant selection is 100% science I also definitely do not believe in taking the art of it this far. This type of landlord has some common things you can look to occur. One, they will have a high eviction rate and a low collection rate. A quantifiable number that can be proven and calculated. Not every time of course but as a rule and another common thread you will find in this type of investor/ manager is they will typically not stay in the rental business for long. Once you find one of these, watch them because there is a good chance you will get to buy a nice rental home one day.
Now that we have looked at some quantifiable science behind tenant selection as well as some art to the equation, let’s explore where it falls generally in reality. Art and science to tenant selection is a double-sided coin. This is my take on the skill and a skill is exactly what it is. To be truly successful you must recognize this as the skill it is and work diligently to become great at it. True tenant selection is both an art and a science. First off, you most definitely need to collect quantifiable data from a prospective tenant. Snapshot as they may be credit ratings and current income can give you lots of insight to your prospective tenants. Even if you get credit reports with some hiccups, and you will, it gives you the opportunity for dialogue.
There are more to selecting great tenants than credit reports and income verification, however. There is in fact quite a bit of art in this as well. Once you find a few tenants that meet your minimum credit score and seemingly have the income to afford your place it is time to decide on a tenant. If you are marketing your property correctly by this point you will have more than one tenant to pick from. The interview should have already been ongoing, with you taking notes, from the first time you spoke to the tenant via text or phone. Ask probing questions into the last few places they have lived and then pay attention to their answers. Don’t worry if you are not great at this as you meet with more and more prospective tenants you will get better and better. I am going to throw some advice from my own experience here when it comes to talking to tenants. They will tell you what they are you just have to believe them.
Another way of gathering information and making decisions on prospective tenants is asking for a rental history. Though this may sound scientific on it’s face it can actually be quite an art. If you are a new landlord, you may not believe this, but tenants will lie to you, especially bad ones. I can’t tell you how many tenants over the years put “former landlords” on the rental application that turned out to be a best friend or family member posing as a landlord. This can be combatted by interviewing the landlord as well. A few well-placed questions about how they do things, and you will have the low down on whether they are real. This part of tenant selection is most definitely an art. This skill will take some practice but is worth developing as people who want something from you such as your apartment or your nice single-family home will not always be forthcoming.
In conclusion, after 20 plus years of managing rental homes in all neighborhoods for all economic classes I am thoroughly convinced that Tenant selection is by far one of the hardest parts of this business. It is this way because it is both an Art and a Science. The entrepreneur wishing to be successful in the rental business should become a student of both facets of management skills. Remember this, you can fail at almost every aspect of real estate investing but get tenant selection right and save yourself. This however is a double-edged sword as you can hit every aspect perfectly yet fail and tenant selection and fall miserably time and time again. My advice to anyone entering the real estate game is to gather all the information they can, ask multitudes or probing questions, pay attention to body language and personalities and even make them uncomfortable to watch reactions. Remember you do not have to rent your home to just anyone and making the best decision here is in your best interest.
Article by David V, the original and official Undergroundlandlord.
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