Owning rental properties can be lucrative. It also involves a lot of work and many decisions. Who will live in the property is one of the most important decisions that any investor makes, regardless if it’s his or her first rental property. The wrong decision can cost you time and money. This article will help you make the right decision.
What to look out for when selecting a tenant
The screening process is designed to assess risk. These are the same factors that your lender would use to approve you for a mortgage. You can set your own criteria, but it’s important to establish minimum requirements to protect your financial health. This is one of the things that a property manager will do for you.
Renters should meet certain criteria
Consider these factors when deciding if you want to rent a property to a certain candidate.
- Minimum credit score – You decide the score. It will often depend on the price you charge for the property. A credit score below 750 does not mean that your tenant will be unable to pay rent. A score that is extremely low can be a sign of past problems with payment.
- Proof of employment – If the applicant is not independently wealthy, he or she will need to have a job to pay rent. It’s not enough to trust that someone works at the address they claim. Proof of employment is required.
- They have the deposit and first month’s rent – You’ll want to make sure that they can pay the deposit and the first month of rent before you sign a contract. This could come in the form of a bank statement or by waiting until a check clears.
- Clear background check – It is a fact that many first-time landlords overlook. Rental property owners often follow their gut instincts, based on how a tenant makes them feel. Background checks are expensive. You need to know for sure who is living in your home. It is not necessary to disqualify someone because of a minor infraction. Renting to someone who has a criminal record or a domestic issue should be carefully considered.
You can be flexible in some cases. It’s true that you own the property, and can rent it out to anyone you choose. If you decide to rent to someone with a poor credit rating, we highly recommend asking for a cosigner.
These red flags can also be used to identify potential problems when screening potential tenants in the future:
- Unstable Employment History – Just because a person can prove that they are currently employed, doesn’t guarantee it will remain so. Unstable employment history can mean that you are unable to keep a job. You should question yourself in the same way that an employer might question a candidate who has gaps in their CV or too many jobs within a short period of time.
- Evictions – This is another one of those that is pretty obvious. If a potential tenant has been asked to leave previous rentals, this could cause a lot more problems in the future.
- Bankruptcy – There are many reasons why a person might declare bankruptcy. This one should take into account the cause and timeline. If you have a history of bankruptcy, it is important to carefully consider whether or not they are able to rent out your property.
- Criminal record – If a person has been convicted of violent crimes, domestic violence, drug crimes or property crimes within the last few years, you probably don’t want to rent their home. If you think that enough time has passed then a person who has a criminal record could be considered. Be cautious.
You should be asking the tenant about these red flags. Perhaps you may be able to forgive an unreported credit error, a stolen id, or the negative effect COVID-19.
You may find that a prospective tenant had a tough life and is now back on track. It is up to you to decide whether or not to give them a shot.
Legalities and responsibilities
You have legal and ethical obligations as a landlord during the vetting procedure. Let’s look at a few.
State and local laws
Renter’s Rights and local laws governing landlord-tenant relationships are important to know. Included in this are local laws on discrimination. In several states, landlords are not allowed to refuse to rent to domestic violence victims. One of the big advantages of a property management company is that they are very familiar with these laws.
Moreover, the amount of security deposits can be restricted by law. In some states, a landlord is only allowed to charge one-and-a-half times the monthly rent.
Fair Housing Act
The Fair Housing Act prohibits discrimination against tenants based on their race, color or religion. Renting to someone is illegal if you refuse them a rental based on one of these reasons. It is also illegal to lie about a property’s availability, change the rental terms and conditions, or offer less appealing amenities in order to evict tenants.
How to screen a prospective tenant
These steps can help you choose the best tenant for your needs.
Establish a minimum criteria
You’ll first need to determine what the minimum criteria for tenants will be based on our discussion above. Before you begin accepting applications, you should determine what you will require in terms of credit score, finances and employment.
It is also important to consider lifestyle. Do you allow pets or smokers to rent your property? Will you require that your tenants smoke outside? What types and sizes will you accept as pets? You can check similar rental properties around you if you are unsure. You can also ask other property owners in your area for their opinions.
Create a detailed listing
A detailed listing will help the renter determine if it is a suitable property for them and if they are a good candidate. It sets the expectations before you meet with tenants.
By including this information on the rental listing, you can filter out potential tenants who don’t meet your criteria or won’t comply with your rules.
Include the following information:
- Rent monthly
- Deposit Amount
- No application fees
- You will perform a background investigation
- Refer to the following:
- Pet policies and smoking
Listings of high quality are an excellent way to attract applicants who meet your requirements.
Review applications and obtain consent
You can also ask for applicants who are interested to rent your property. You can learn more about your potential tenants, and you can run credit and background checks. Include the following information with your application:
- Name, contact details, date of birth, license number and Social Security Number.
- Previous addresses of the applicant
- Names of other occupants (roommates or children, etc.).
- Information on income and employment
- Please provide the following contact information to referees.
- Additional screening questions about pets, previous evictions and reasons for moving, etc.
You can then select the tenants you want to screen. To pull a tenant’s credit report or to run a background check, you must first obtain their consent. It is important to get the consent of prospective tenants in writing.
Check your credit and criminal history
When you run a credit report, look beyond the credit score and verify these details:
- The applicant has provided you with the correct name and date as well as the past address.
- Financial problems in the past or present are not an issue. Included are late or missed payments, bankruptcy or excessive debt.
There are three options based on their credit report. You can choose to accept the tenant or reject them. You can ask the tenant for clarification on any discrepancies you see.
You can identify potential tenants who may pose a threat to your property and neighborhood by conducting a criminal background check. The background check is a great way to keep tenants and not have them held accountable. This background check will reveal any felony convictions or misdemeanors as well as eviction records.
It is your decision whether you will still accept a tenant who has a criminal history. Each case should be considered individually. You should ask for more details from the tenant and consider the severity and timeframe of the crime.
Sign the lease and identify your new tenant
You will be in a better position to make a decision once you have the list of possible tenants. If your first choice of tenant isn’t available, you can choose a second choice or a third. After you decide on a tenant, notify them as soon as possible and set up a date for them to sign the contract.
Consult a local attorney to draft a lease and review it with you.
This is a lot of work. It can take a lot of time and effort to find and screen a new tenant.
Contacting a property management company that has a good track record is a great way to ensure all of these steps are done legally and correctly. They can save you time and money by using their expertise and knowledge. You’ll find the perfect tenant in no time if you choose the right property manager.