Choosing the right rental tenants can be an overwhelming and confusing process for many landlords. If you don’t have a tenant screening system in place before you begin advertising your vacant space, you could quickly find yourself in a frustrating situation that is costly in both time and money. These five simple steps will help you choose the best tenants and aid you in avoiding some common pitfalls that come from picking the wrong renters.
1. Abide by local, state, and federal laws
On the surface, this one sounds like a no-brainer. But, if everything related to renting regulations was obvious, landlords wouldn’t get in trouble for things they didn’t realize they’re doing wrong.
Laws at all levels can be tricky, particularly because they can change on a whim, and there are dozens of tiny little clauses one may not know about unless their full-time job is keeping apprised of landlord/tenant compliance. Even more confusing is the fact that rental regulations can vary widely from one city or county to the next. If you have two properties that are next to each other—but they’re magically separated by an invisible locality line—you could potentially be looking at two completely different sets of laws to which you need to adhere.
Federal laws—while not necessarily easier to understand – at least from a textbook perspective – have a lot more resources for landlords because they’re uniform across all fifty states. As such, there’s a lot of information that’s published in laymen’s terms to help property investors do the right thing when it comes to abiding federal laws.
In any case, it can be easy for landlords—especially those who are inexperienced with rental laws—to mistake their ideal tenants with people who are lawfully the right renters. Let’s say you don’t like children. Your ideal renter may be an adult who doesn’t have kids, but the law would disagree. If you choose not to rent to someone who’s otherwise qualified but has a child, you’d be violating the familial status protections of Fair Housing Act, which could quickly put you in hot water. This law also prohibits landlords from discriminating against potential renters based on:
- Race or Color
- National Origin
- Religion
- Sex
- Disability
Getting in trouble with the law isn’t an outcome most property investors are anticipating. For this reason, many landlords seek the assistance of professional property management companies to ensure they’re in compliance with all applicable laws when they’re ready to find the right tenant for their spaces.
2. Check your tenant’s references
Sometimes, reputations do precede people, and in the tenant screening world, this is an important factor. Try to talk to at least two of your applicant’s landlords, especially if they have lived more than two places over the past five years. Checking references will give you insight into your applicants’ rental histories.
If they were known to pay rent late (or not at all), you’ll want to know that ahead of time. Conversations with prior landlords will also help you glean information as to how well your applicants respected shared spaces, which is essential if you’re renting a unit within a condo or apartment building. If they filed complaints against their neighbors every day— or if their neighbors did so against them— you’ll want to know this during the decision-making process.
Need a starting spot? Here a few questions to start the conversation:
- Did the tenant pay their rent on time?
- Did other people complain about them? If so, what were the complaints?
- Did they give you proper notice, as defined by your lease, before they moved out?
- Did you find damage to your property after they moved out?
- Did they lodge a lot of complaints against neighbors or about the property?
A few simple questions can give you great insight into the potential state of your own rental property in the future.
3. Run a credit check on your applicant
Credit can be just as tricky as compliance if you don’t understand what you’re looking for. A lot of people think credit checks are only useful in determining if applicants pay their bills on time. While that’s certainly an essential piece of the puzzle, it’s not the entire picture. Sure, credit checks will tell you if someone has debt that’s gone into collections, which can be a red flag, barring outstanding circumstances. But, there’s a lot more you can pull from credit check documents.
An applicant’s debt-to-credit ratio is extremely vital when you’re investigating rental worthiness. Let’s say you have two candidates who are both great fits for your rental space, which you’re renting for $1,000 a month. Applicant A makes $3,000 a month and owes $2,400 in monthly debt payments. Applicant B makes $500 per month less than his opponent, but he has no debt. At first glance, Applicant A may seem like the better choice, but his debt-to-credit ratio only allows $600 for other expenditures, which would include rent. Applicant B doesn’t have debt and will likely have a much less difficult time paying the $1,000 monthly rental fees.
While you’re at it, ask for verified proof of income. Your applicants should be able to give you their pay stubs and employers’ contact information so you can verify their length of employment and attendance records.
4. Perform a criminal background check
Background checks will enable you to gain insight about an applicant’s character, based on both minor and serious offenses. Much of this information is a matter of public record and can be searched for online or at the local courthouse, depending on your location’s documentation processes.
Be advised that people who have things to hide may try to disguise pertinent information such as their full names and dates of birth, both of which are essential for proper criminal background checks. Make sure you get a copy of a valid ID (and verify that the person you’re searching for is the person in the picture). This process can be tedious and time-consuming, and certain areas have laws that restrict you from taking specific violations into account. You may want to hire a property management firm to take care of this portion of the process on your behalf.
5. Put your requirements on paper
If you have specific restrictions or guidelines by which renters must abide, put that information in your ad. You’ll save yourself a lot of time by allowing renters who don’t fit your needs to weed themselves out. If you don’t allow smoking or only permit one type of pet, this should be front and center in your advertisement.
Screening tenants and finding the right renter is seldom easy, but with a system in place, the process is much simpler. A little due diligence up front can ensure that you’re in a comfortable place as far as the law is concerned while providing you with high-quality renters who will care for your property as though it’s their very own.
About the Author
Patrick Freeze is the President of Bay Management Group, which manages about 4,000 units in the Mid-Atlantic Region. The company is overseeing more than $700 million worth of real estate as of October 1st, 2018.
Note: This is a guest post; the views and opinions expressed are those of the author and do not necessarily reflect the opinion or position of Redfin.
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