Owning and managing rental properties can be very profitable. (From just two rental properties, my husband and I make $1,200/month in positive cash flow.) As a rental property owner, you may find yourself dealing one-on-one with tenants. Make sure you handle these encounters as business transactions, and don’t let your emotions – or your desire to fill a unit – prevent you from making sound business choices.

A few years ago, a prospective tenant explained her bad credit by telling us that she didn’t pay rent at her last apartment because of a rat infestation. We believed her story. We were short on cash and time, so we just took her money and let her move in with a roommate.

It wasn’t long before there was trouble. Around 2:00 a.m., the tenant threatened her roommate with a knife and he called the police. While the cops had her in holding, he moved out.

We were stuck with an unstable tenant with bad credit who decided she shouldn’t have to pay all of the rent because her roommate had left her in the lurch. It took us almost three months and nearly $5,000 in fees and lost rent to legally remove her from the premises. The most painful part was that the situation was totally preventable.

Now, we follow a strict process for finding and screening tenants:

1. Show the property in good condition. If it doesn’t show well with the existing tenants living in it, wait until they move out. Good tenants have choices, and if the property doesn’t look attractive, why would they want to rent it?

2. Price the unit slightly below the market rate. $20 per month below competing units will attract more applications.

3. Run each applicant’s credit report and call their previous landlord – the landlord before their current one. If they have caused problems, their current landlord could be anxious to get rid of them and may not be truthful.

4. Verify the applicant’s employment. We usually ask for a recent pay stub and call the company to verify that they hold the position they claim.

Taking these steps is common sense. But when you are a beginner and you don’t have much money (or you’re spending most of your money on renovations, like we were), dealing with a vacant unit and the prospect of missed rental income is terrifying. You may find yourself justifying bad decisions that you otherwise would never allow yourself to make.

[Ed. Note: Renting properties is a great way to make extra cash in any market. For more expert advice on making money with rental property, sign up for Julie Broad's free monthly newsletter. Get your free report for making money with real estate here.

Real estate is just one of many strategies you can use to reel in big profits - even in this economy. Learn how to get your hands on over $17.3 million in moneymaking ideas right here.]

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This entry was posted on Saturday, February 28th, 2009 at 5:10 am and is filed under Real Estate Investing .