Finding “A” Tenants v. “B” Tenants

A Tenants v. B TenantsBy Scott Taylor, Agent Mechanics

To be an effective rental manager, you need to understand your target market, or, in other words, the specific types of tenants you wish to attract to their properties. Your market is not the entire world, it is not all the people in your town, and it is not even all the people looking to rent in your town. It is much smaller than that. The quicker you identify your target market and get your message in front of them, the quicker you find a quality tenant.

If your rental is in a college town, then your target market may be college students. If your rental is in a retirement community, then your target market may be people over fifty-five. Wherever your rental is, you have a target market. But no matter who the target market is, you need a good tenant.

One of the mistakes I often see landlords make is not understanding the difference between good tenants and bad tenants. Admittedly, they aren’t always easy to identify. Instead of using good and bad, let’s start using wording that is less “loaded.” I use A Tenants versus B Tenants.

“A” Tenant Characteristics

We are looking for A Tenants, while the rest of the world may be satisfied with, or not understand how to identify, B Tenants. A Tenants are motivated, ready to move, and qualified. They have good credit, stable jobs, and funds for the security deposit. A Tenants are less likely to try and negotiate the rent or security deposit.

Why someone might rent versus buy is entirely subjective, so it should not be a limiting factor in approving a renter. For example, I live about an hour from my office. Should I ever decide to move closer to my office, I will rent because I can rent an amazing property, in a fantastic neighborhood, where someone else will clean the pool and mow the lawn, and pay my HOA fees. All of this for about $2,000 per month less than I would have to pay to purchase a similar property; and that does not include the five to ten percent down payment that I would need to supply as a buyer.

“B” Tenant Characteristics

B Tenants, by contrast, always have something to explain. They want to tell you why they have bad credit or why that criminal charge is on their record. Whatever they explain is the fault of someone else. They are going to try to negotiate the rent, the length of the lease, or the security deposit. You know you have a B Tenant when he or she says, “I promise I’ll pay the security deposit next week. I’m getting a check from a friend.” Or “Can we break that security deposit into three parts? I don’t have that much money right now.”

If a prospective tenant has a story to tell you, walk the other way. Bad things can happen to good people, but you are not obliged to rent to them. You are looking for tenants who take personal responsibility for themselves. The B Tenant is always going to have a reason why they cannot pay their rent.

Tenant Selection and Fair Housing

When I pitch this idea, sometimes landlords worry about fair housing issues. Fair housing laws make it illegal to print or publish any real estate advertisement that indicates a preference, limitation, or discrimination based on race, color, religion, national origin, sex, handicap, or familial status. When it comes to financial qualifications, however, you can set strict qualification standards that apply equally to everyone.

It’s not discriminatory to choose a willing and able tenant over one who does not have sufficient stable income, lacks a security deposit, or has terrible credit—that’s a business decision.

As landlords our desire is always to make money. By looking for A Tenants you can dramatically improve both your money making ability and save yourself time in the process.