Tenant screening is the most important process a landlord needs to master when managing passive income properties.
Finding a good property, thorough market research and negotiating good rates on the mortgage are steps that ensure your rental can be lucrative. But rent a unit to a tenant that you eventually evict and you can kiss goodbye your profitability.
In this article, we’ll show you a basic but thorough tenant screening process that’s easy to implement with actionable tips.
Draft an Ideal Tenant Profile Before Advertising the Property
As you get ready to advertise your rental property, take a few minutes to write down what kind of tenant you’re looking for.
Of course, everyone would like a well- established doctor couple that listens to classical music on low and pays rent on time. But that’s not realistic is it?
Rather, look at your property and try to estimate what type of tenants it’s likely to attract. Here are a few considerations:
What’s the Tenant’s Ideal Income to Rent Ratio?
Some recommend the tenants should have a gross salary equivalent to 3x the monthly rent. Here’s an example:
A property renting for $1,500 a month rent would require the tenant to make $4,500 (3 x 1,500) or more a month, or $54,000 a year (3 x 1,500 x 12).
While this is the industry rule of thumb, remember that not all rental properties are equal. If your property is in an expensive part of town with tons of expensive restaurants, shopping and entertainment nearby, you may want to raise that ratio to x3.5 or even x4. This is to account for the lifestyle the tenant is likely to partake in.
On the other hand, if you bought a rental in a financially depressed part of town, maybe you’ll want to lower your ratio to x2.9 or even x2.75 in order to accept applications from a broader pool of applicants.
Will All Prospective Tenants Have Rental Histories?
If you bought in an area that accommodating mostly new immigrants, you may be doing yourself a disservice by using rental history as a tenant screening criteria.
This is similar with student housing around colleges and universities. Most first year students don’t have a rental (or credit) history for you to verify.
All this doesn’t mean you have to lower your tenant screening standards. Rather, be flexible if after a few weeks of posting the property you’re not getting any ideal candidates.
Save Time by Pre-Screening Tenants With a Solid Listing
There’s no point screening potential tenants that don’t meet your standards. So why invite those kinds of tenants for a visit in the first place?
Your listing should include all the details of the property, what kind of tenants love the unit, where it’s located, what it offers, how clean it is and when it was renovated.
If you’re looking to attract higher income tenants, don’t forget that you can also stage the rental property.
The 10 Step Tenant Screening Process
Throughout the tenant screening process, your primary focus is to validate the information the tenant gives you and attempt to identify any “red flags”. If you come across such a “red flag” it’s usually a sign you should pass on that tenant.
Step 1: Pre-Screen Prospective the Tenant Over the Phone
Don’t invite a tenant over for a visit if he or she doesn’t meet your standards. Instead, use the first phone call (when the tenant calls to book a visit) as a first screening opportunity.
Points you’ll want to cover are:
- What’s your ideal move-in date? A red flag is a move that’s soon or immediate. But ask why as the tenant may have a valid reason. This may be a sign that the tenant is being evicted.
- What’s your budget? To attempt to find if the tenant can afford the advertised rent.
- Have you looked at other rentals in the area? and, What attracts you to this neighborhood? Do they have a good reason to move in your area or are they looking for a quick place to stay?
- Do you have previous landlord references? You’ll be calling up those references later. If they don’t, ask why. It may be that they’re new to the rental market. Don’t screen them out yet!
- What do you do for a living? You’ll be looking up the tenant online afterwards and calling references. This is a good way to validate if they’re being honest. A red flag to look for is a tenant that oversells a job title.
No one likes being interrogated on the phone so sparse these questions throughout the phone call with the tenant.
Step 2: Send the Tenant an Application Form
Assuming everything checks out over the phone, you can send the tenant an application form before the visit. Ask for an email address to send it to as this will help when looking at your tenant’s online profile.
Here is the information you’ll want to collect on the tenant:
- Personal identifying information: full legal name, current address, phone and email address, and date of birth.
- Residential history: landlord’s contact information and previous home addresses.
- Employment history: current employment, name of position, supervisor contact information, and income.
- Financials: outstanding debt and if the tenant consents to you checking their credit profile.
- Emergency contact information.
Make sure your application form includes a section where the potential tenant gives you express consent to run the checks, especially for credit history.
Some tenants prefer to wait until the visit to fill out the form. That’s understandable as it’s filled with personal information. If that’s the case, don’t consider that a red flag.
A tenant that arrives with a completed application form is a good sign. It means they’re motivated to get the rental, sight unseen. This is usually the case for renters seeking rare units in tough rental markets.
Step 3: Look at the Tenant’s Online Footprint
Before the visit, spend a few minutes looking for the tenant online and on social media platforms.
Here’s how you can check them out:
- Google: they may have been mentioned in news articles.
- LinkedIn: keep in mind that if you’re logged into your account, they’ll see you looked at their profile. This is where you can validate their employer and sometimes see who their supervisor is.
- Facebook: all you’re looking for is for signs that they’ll be noisy tenants. You shouldn’t screen a tenant if he or she has hobbies you find strange.
- Instagram: a platform mostly popular with millennials and younger generations..
If you’re not technically savvy, you can use a free service like pipl.com.
Step 4: Talk to the Tenant During the Property Visit
So far, everything checks out and you invite the tenant for a property visit. You can use this opportunity to slip in a few more screening questions.
Not everyone is gifted with Shakespearean eloquence, and that’s fine. That’s why you should ask open ended questions. These get the tenant talking instead of you.
For example, you can ask questions like “tell me about your job”, instead of “where do you work” or “what do you do”.
Here are a few more topics you can cover during the visit:
- Who else will be living with the tenant.
- The types of pets the tenant is bringing.
- Discuss the smoking policy of the building.
- If in a condo building, discuss the noise policy or any other by-law that may affect the tenant’s enjoyment of the rental.
The visit is also a good time to clarify any conflicting information between what the tenant told you over the phone and what you found online or on the application form.
You can also screen tenants by analyzing the behavior during the visit. This will give you an idea what kind of person you’re dealing with. Here are a few points to look for:
- Was the tenant on time?
- What’s cleanliness of the car?
- Does the tenant present himself/herself well?
- Does the tenant close closet doors after looking into them?
- Did the tenant remove his/her shoes?
- Did the tenant turn off the lights when leaving the room?
- Did the tenant comment on how clean the unit is?
Keep in mind that the tenant’s focus is on visiting the apartment, not necessarily answering your questions. You may get partial answers. If that happens, cover the question again later when the visit ends.
Step 5: Ask for the Tenant’s Photo IDs During the Visit
Prior to the visit, remind the tenant to bring valid photo ID, ideally two pieces. Then during the visit, ask to see the ID. This is a crucial step in preventing fraudulent applications.
Keep in mind that not all tenants have driver’s licenses. The following can be used for validating someone’s identity:
- Provincial health cards.
- Permanent resident or refugee cards.
- Certificate of Indian status cards.
- Nexus cards.
If you’re dealing with new immigrants to Canada, they may not have federally or provincially-issued ID.
Step 6: Verify Tenant’s Employer Information Yourself
Employer contact information found in the tenant screening form isn’t necessarily the tenant’s supervisors’ contact. Who’s to say it’s not a colleague the tenant gets along well with? Or even worse, a random friend that agreed to play the part?
When it’s time to call references, verify the contact information yourself.
This independent verification can take many forms depending on the industry or job type.
For white collar jobs you can open LinkedIn, find the supervisor and call them directly through contact information found there.
For blue collar jobs, it can get a bit more complicated as not all industries lend themselves well to LinkedIn. In those cases, you can Google or find the business in the Yellow Pages. Call the receptionist and ask to speak to the tenant’s supervisor. Just make sure you mention that it’s for a rental reference check.
Your goal is to see if the tenant is indeed an employee. Stick with the bare minimum questions here, you’re bothering people at work and being pushy with a supervisor could have consequences for the tenant.
Step 7: Contact Previous Landlord References
Just as you checked the employer references, find the contact information of previous landlords yourself.
This can be achieved by searching the address online. You’re bound to come across an active or archived listing which will contain the landlord’s contact information.
If the tenant lived in a large property managed by a corporation, the number provided should be easily searchable.
Otherwise, you can contact your realtor or real estate lawyer. They can run checks in the land registry of the tenant’s current and previous addresses. From there you’ll get the names of the previous landlords which validates the information the tenant gave you.
Step 8: Check the Tenant With Your Local Landlord Association
Most provincial or city-specific landlord associations have tenant screening assistance services. They can check to see if the tenant was ever reported by previous landlords.
Step 9: Conduct Legal Credit Checks on the Tenants
Whatever you do, don’t use a credit report provided by a tenant. How easy is it to create a fake report? Pull your own data.
This part of the tenant screening process requires the tenant’s permission. You cannot perform a credit check on someone without their consent (more on that later).
Running credit checks on tenants has become fairly easy as of late. You can do so online at:
- Equifax’s website.
- certn.co: a new service that uses artificial intelligence to screen tenants based on hundreds of data points.
- TenantVerification.ca: a professional tenant screening company.
Here’s what you’re looking for when you get the credit report:
- Total debts: will affect how much income they lose to repaying those debts. Tenants will pay debts, buy food for themselves, pay utilities and pay rent with what’s left. You want to make sure they have enough left over for that last part don’t you?
- Debts that went to collection: a sign that the tenant has troubles meeting financial obligations.
A tenant doesn’t need to have a credit score of 775 to be considered reliable. Not all great tenants have pristine credit. Using credit score as a screening criteria may make you pass up on potentially great tenants.
In fact, you should avoid using the score solely for screening purposes. Look at all the data you collected so far and come to a conclusion based on that. The screening process should identify if the tenant is a reliable employee, was a good tenant and has reasonable financial discipline.
Step 10: Calculate the Tenant’s Rent Affordability
With a paystub (validated through the employer reference check) and the credit report, you can deduct whether the tenant can afford the unit.
Run the tenant affordability screening check. This involves multiplying rent by 3. If your tenant doesn’t meet that monthly threshold, getting around to paying on time may be difficult.
In instances where a couple is renting the unit together, calculate affordability based on one salary. If one gets fired, can they still afford to live there?
Where a couple wouldn’t be able to afford rent on one salary, use your common sense.
If they’re renting in an expensive market that no single tenant could afford, give some leniency. Similarly, if you found from the employer reference checks they’ve been working there for 5+ years, it’s unlikely they’ll lose their jobs anytime soon.
Tenant Screening Tactics That Can Get You in Trouble
Throughout the tenant screening process, there’s a few points along the road that can get you in trouble:
- Acquiring the Tenant’s Credit Information Illegally: In an attempt to save a few bucks, you ask your mortgage broker friend who has access to credit checks to run the Equifax. Unfortunately, this is a breach of the tenant’s privacy expectations. It’s also a breach of your friend’s terms and conditions with the credit agency. If the tenant gave you permission to run a credit check, they only authorized you to see the results. Pay the fee.
- Asking Questions That Breach Human Rights Acts: Do you plan on having any more children? Where you from? Are you married or single? These are examples of questions that touch on traits protected by provincial Human Rights Acts. Be careful what questions you ask and how you phrase them. Remember that you’re not allowed to screen a tenant based on:
- race, colour or ethnic background,
- religious beliefs or practices,
- ancestry, including people of Aboriginal descent,
- place of origin,
- citizenship, including refugee status,
- sex (including pregnancy and gender identity),
- family status,
- marital status, including people with a same-sex partner,
- sexual orientation,
- age, including people who are 16 or 17 years old and no longer,
- living with their parents,
- receipt of public assistance.
- Insisting On Getting the Tenant’s Social Insurance Number (SIN): According to Equifax, a SIN number isn’t required to run a credit check and can be done with the full name, date of birth and address. Insisting on getting the tenant’s SIN can be a breach of privacy.
- Enforcing Illegal Pet Bans: In some provinces, a landlord cannot screen a tenant based on pets. That said, if your unit is in a condo that has a pet ban, you need to let your tenant know about it so they can choose to bring the pet or not.