You did all the real estate analysis you’re supposed to do. You examined the financial viability, neighbourhood liveability, and even the local economy where your next rental investment property is situated. After careful calculation, you finally bought the property and renovated it to rental standards.
Now comes the most crucial part: finding the right tenants.
In my years of experience in the rental industry, I’ve seen time and time again how choosing your tenants is the single most significant contributor to the success of a rental business. Choosing the right tenants is the difference between having people who’ll pay rent and keep the property clean, versus tenants who hoard trash or sneak pets into your rental that ruin the floors!
The bottom line: You don’t want problematic renters that make your life harder. You want responsible tenants who help make your investment more profitable and your property management duties easier.
The only way to ensure that you get high-quality tenants is by thoroughly screening all prospective applicants during the application process. You should always check their financial standing, past tenancies, and get to know more about their personal background and rental goals to get a stronger indication of how they will use and maintain your rental.
I’ve put together all the tips I’ve learned about how to screen tenants to minimise your risk factor as a landlord. You can use this article as a guide to begin thoroughly screening your tenants for higher chances of investment profitability and stability.
Let’s get to it!
Set Your Standards (and Stick to Them!)
The first step is to determine what kind of tenant you are looking for. Then, list down the factors and identify your minimum expectations. Here are some examples:
- Income: Tenants should ideally have a steady income stream of at least 3x the rent amount. If they don’t, they should have a co-signer or guarantor who can assume some of the financial responsibility. Make sure you get the past two years’ worth of income history to ensure they have a consistent income and won’t be bouncing from job to job.
- References: Tenants must have good references from their employers and previous landlord(s). Ideally, you want references who speak highly of the tenants’ financial responsibility and property maintenance history. (Just make sure you verify the identity of employer and landlord references, so you can be sure you’re not talking to a friend who’s posing as their ‘landlord’.)
- Background: Tenants must have a clean background without a criminal record. Any type of criminal behaviour should be seen as a big red flag, and ideally you want tenants with clean credit histories, too.
- Evictions: Tenants must not have had any evictions in the past. Just searching for eviction records might not be enough to confirm this – you may need to speak to previous landlords or look for gaps in their rental history to find out more about past rental disputes that may never have made it to court.
Not only will listing these priorities help you filter out many applications, but it can also help you decide among your shortlisted candidates later on in the process.
Ask the Right Questions
As part of the application process, you’ll ideally conduct an interview with the prospective tenants. During the conversation, here are some questions you can ask to find out more about how they’ll be as a tenant:
- Why are you moving?
Asking their reason for moving allows you to check for potential problems that could arise in the future. Acceptable answers would be because they’ve found a new job or they need more space.
But if their reasons are because of an eviction or dispute with their landlord or neighbours, you might need to ask yourself if they’re going to be your problem in the future. You might also want to ask them about their previous landlord – if they’re eager to trash talk their previous landlord, what will they say about you once they move out?
- When are you moving?
Aside from the reason for moving, ask about their target move-in date. Tenants who want to move in immediately are concerning, as most rentals will require a month’s notice before the tenants move out.
Applicants that want to rush the process might be “running away” from an issue with their previous landlord, or they forgot to send in their move-out notice earlier, or they’ve left moving until the last minute—all which is a sign of irresponsibility.
- Will you agree to a credit and background check?
Besides asking about their employment, you can also ask their permission to run a credit and background check. Once you get the written consent to run these checks, here are your goals:
- Check their credit score and evaluate it based on your location and clientele.
- See if they have any debts or bankruptcy that impacts their ability to pay rent.
- Scan public records if there are judgements levied against the tenant (e.g., garnishes or evictions with a monetary claim).
Extensive debts and poor financial choices could indicate that they aren’t so good with budgeting their money (which means they might not be great at paying rent on time or in full). You also want to consider any significant debts when you factor in monthly salary.
If your tenant makes $3,000 a month, and rent is $1,000, that may seem all well and good (because it passes the “income = 3x rent” rule). But if you add a $300 credit card payment and a $500 car payment on top of that, suddenly the ratio isn’t looking so good.
- Can you provide references from previous landlords and employers?
Having called up many landlord and employer references myself, I can tell you that there are plenty of applicants out there who actually get their best friend to pretend like they’re one of their past landlords or employers.
Be particular with getting in touch with the necessary references to determine whether or not they’re reliable. Ask them to tell you details about the property and the applicant’s history, and if possible, cross-reference the name of the homeowner in public records with the name of the landlord you’re speaking to.
Once you’ve verified they are who they say they are, take your time in speaking to the references directly. Your goal is to get answers to questions surrounding the applicant’s character and responsibility.
Remember: How they treated their past landlords is how they might treat you in the future.
After asking the applicants all these questions, the next step is to evaluate their answers. Doing so will help you assess if they are a good candidate or not for your rental.
Evaluate their Answers
Screening tenants is still a flexible process, so the flowchart below should not be considered a definitive process. In fact, I know most landlords trust their gut when choosing their tenants—as long as the tenants cover the factors that contribute the most to their business.
However, your gut can sometimes lead you astray. If you want a more process-oriented approach to evaluating tenant applications, you can use this flowchart:
Source: Based on BiggerPockets
If you go through these screening steps in order, it can help you find the best tenants with less time and energy spent on screening. For example, you’d want to cross out those with evictions or criminal records (before you bother to look into their employment history) to help you sift through candidates faster.
Qualified Tenants = Quality Rental Investments
Tenant screening may be time-consuming and tedious, but it comes with immense rewards.
By ensuring that only the most qualified tenants will stay in your properties, you can be confident that your rentals will generate positive cash flow and remain well-maintained.
Remember to set your standards, ask the right questions, and evaluate applicants’ answers based on your priorities to identify the cream of the crop—and protect your rental investment at the same time.
Don’t have time to spend hours sifting through background checks and credit reports to find the most responsible tenants? Get in touch and let our expert team of property managers find you the perfect tenants effortlessly.
Get in touch with us directly or browse through our other blogs to get more tips on how to find your next investment property. We are always more than happy to chat and help!