If You're a Landlord, This Key Factor Is More Important Than the Rent You Charge

It's something you must pay attention to.

Investing in real estate isn't for the faint of heart. There's a lot of risk that goes into owning an income property.

First, you have to cover your mortgage loan payments every month -- even if your rental sits vacant for a period of time. You also have to keep up with expenses like property taxes, homeowners insurance, maintenance, and repairs.

Ideally, the income you earn by charging rent will be enough to not only cover your costs, but allow you to profit. But there's a trap you might fall into as a landlord, and it's one that real estate guru Graham Stephan wants to help you avoid.

Don't focus on the wrong factors

As a landlord, your goal might be to eke out as much profit as possible on your rental. And to achieve that, you may be inclined to rent to any tenant who's willing to pay up. 

But in a recent tweet, Stephan said, "If you're a landlord and plan to rent out your property, optimize for the quality of the tenant, not the rental amount."

He then went on to tell a story about a mistake he made back in 2012. At that point, Stephan was desperate to fill an open rental and chose the tenant who offered him the most money for it. In doing so, he ignored certain red flags that should've made him think twice about moving forward. And lo and behold, after six months, that tenant stopped paying rent.

That's why you really need to focus on finding quality tenants if you have an income property to rent out. If you rent to someone who's willing to pay a premium but they fall behind on their rent or stop paying altogether, you're going to stop making money -- and you might end up with a major hassle on your hands. 

How to find a great tenant

Any tenant you rent to should be someone you're confident will follow your rules, all the while paying their rent every month. To that end, it's a good idea to ask for recommendations from former or current landlords before offering up lease agreements. 

Now, you may run into a situation where you have a tenant applicant who's never rented before, and therefore doesn't have a landlord recommendation to offer up. In that case, ask for a personal reference from an old roommate or even a neighbor or employer. Some sort of reference is better than none.

At the same time, make sure to run a credit check on any tenant you're thinking of renting to. If that person has a solid history of paying bills on time, you're probably safe to rent to them. But if an applicant has red flags on their credit report, like delinquent debts, consider it a warning sign.

Finally, make sure anyone who's interested in renting from you earns enough money to cover their rent. Ask for recent pay stubs to verify their salary. And it may not be a bad idea to ask for a screenshot of their savings account balance so you can verify they have funds available for rent payments in the event of a lost job.

Renting to the wrong tenant could set you back as an income property owner. So rather than fixating on commanding the highest monthly rent payment, focus on finding tenants who are unlikely to leave you high and dry.