Tenant screening is the <\/i>most important process a landlord needs to master when managing passive income properties.<\/p>\n
Finding a good property, thorough market research and negotiating good rates on the mortgage are steps that ensure your rental can <\/i>be lucrative. \u00a0But rent a unit to a tenant that you eventually evict and you can kiss goodbye your profitability.<\/p>\n
In this article, we\u2019ll show you a basic but thorough tenant screening process that\u2019s easy to implement with actionable tips.<\/p>\n
As you get ready to advertise your rental property<\/a>, take a few minutes to write down what kind of tenant you\u2019re looking for.<\/p>\n Of course, everyone would like a well- established doctor couple that listens to classical music on low and pays rent on time. \u00a0But that\u2019s not realistic is it?<\/p>\n Rather, look at your property and try to estimate what type of tenants it\u2019s likely to attract. \u00a0Here are a few considerations:<\/p>\n Some recommend the tenants should have a gross salary equivalent to 3x the monthly rent. \u00a0Here\u2019s an example:<\/p>\n 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).<\/p>\n While this is the industry rule of thumb, remember that not all rental properties are equal. \u00a0If 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. \u00a0This is to account for the lifestyle the tenant is likely to partake in.<\/p>\n On the other hand, if you bought a rental in a financially depressed part of town, maybe you\u2019ll want to lower your ratio to x2.9 or even x2.75 in order to accept applications from a broader pool of applicants.<\/p>\n 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.<\/p>\n This is similar with student housing around colleges and universities. \u00a0Most first year students don\u2019t have a rental (or credit) history for you to verify.<\/p>\n All this doesn\u2019t mean you have to lower your tenant screening standards. \u00a0Rather, be flexible if after a few weeks of posting the property you\u2019re not getting any ideal candidates.<\/p>\n There\u2019s no point screening potential tenants that don\u2019t meet your standards. \u00a0So why invite those kinds of tenants for a visit in the first place?<\/p>\n Your listing should include all the details of the property, what kind of tenants love the unit, where it\u2019s located, what it offers, how clean it is and when it was renovated.<\/p>\n If you\u2019re looking to attract higher income tenants, don\u2019t forget that you can also stage the rental property<\/a>.<\/p>\n Throughout the tenant screening process, your primary focus is to validate the information the tenant gives you and attempt to identify any \u201cred flags\u201d. \u00a0If you come across such a \u201cred flag\u201d it\u2019s usually a sign you should pass on that tenant.<\/p>\n Don\u2019t invite a tenant over for a visit if he or she doesn\u2019t meet your standards. \u00a0Instead, use the first phone call (when the tenant calls to book a visit) as a first screening opportunity.<\/p>\n Points you\u2019ll want to cover are:<\/p>\n <\/p>\n <\/p>\n No one likes being interrogated on the phone so sparse these questions throughout the phone call with the tenant.<\/p>\n Assuming everything checks out over the phone, you can send the tenant an application form before the visit. \u00a0Ask for an email address to send it to as this will help when looking at your tenant\u2019s online profile.<\/p>\n Here is the information you\u2019ll want to collect on the tenant:<\/p>\n Make sure your application form includes a section where the potential tenant gives you express consent to run the checks, especially for credit history.<\/p>\n Some tenants prefer to wait until the visit to fill out the form. \u00a0That\u2019s understandable as it\u2019s filled with personal information. If that\u2019s the case, don\u2019t consider that a red flag.<\/p>\n A tenant that arrives with a completed application form is a good sign. \u00a0It means they\u2019re motivated to get the rental, sight unseen. This is usually the case for renters seeking rare units in tough rental markets.<\/p>\n Before the visit, spend a few minutes looking for the tenant online and on social media platforms.<\/p>\n Here\u2019s how you can check them out:<\/p>\n If you\u2019re not technically savvy, you can use a free service like pipl.com<\/a>.<\/p>\n So far, everything checks out and you invite the tenant for a property visit. \u00a0You can use this opportunity to slip in a few more screening questions.<\/p>\n Not everyone is gifted with Shakespearean eloquence, and that\u2019s fine. \u00a0That\u2019s why you should ask open ended questions. These get the tenant talking instead of you.<\/p>\n For example, you can ask questions like \u201ctell me about your job\u201d, instead of \u201cwhere do you work\u201d or \u201cwhat do you do\u201d.<\/p>\n Here are a few more topics you can cover during the visit:<\/p>\n 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.<\/p>\n You can also screen tenants by analyzing the behavior during the visit. \u00a0This will give you an idea what kind of person you\u2019re dealing with. Here are a few points to look for:<\/p>\n Keep in mind that the tenant\u2019s focus is on visiting the apartment, not necessarily answering your questions. \u00a0You may get partial answers. If that happens, cover the question again later when the visit ends.<\/p>\n Prior to the visit, remind the tenant to bring valid photo ID, ideally two pieces. Then during the visit, ask to see the ID. \u00a0This is a crucial step in preventing fraudulent applications.<\/p>\n Keep in mind that not all tenants have driver\u2019s licenses. \u00a0The following can be used for validating someone\u2019s identity:<\/p>\n If you\u2019re dealing with new immigrants to Canada, they may not have federally or provincially-issued ID.<\/p>\n Employer contact information found in the tenant screening form isn\u2019t necessarily the tenant\u2019s supervisors\u2019 contact. \u00a0Who\u2019s to say it\u2019s not a colleague the tenant gets along well with? Or even worse, a random friend that agreed to play the part?<\/p>\n When it\u2019s time to call references, verify the contact information yourself.<\/p>\n This independent verification can take many forms depending on the industry or job type.<\/p>\n For white collar jobs you can open LinkedIn, find the supervisor and call them directly through contact information found there.<\/p>\n For blue collar jobs, it can get a bit more complicated as not all industries lend themselves well to LinkedIn. \u00a0In those cases, you can Google or find the business in the Yellow Pages. Call the receptionist and ask to speak to the tenant\u2019s supervisor. \u00a0Just make sure you mention that it\u2019s for a rental reference check.<\/p>\n Your goal is to see if the tenant is indeed an employee. \u00a0Stick with the bare minimum questions here, you\u2019re bothering people at work and being pushy with a supervisor could have consequences for the tenant.<\/p>\n Just as you checked the employer references, find the contact information of previous landlords yourself.<\/p>\n This can be achieved by searching the address online. \u00a0You\u2019re bound to come across an active or archived listing which will contain the landlord\u2019s contact information.<\/p>\n If the tenant lived in a large property managed by a corporation, the number provided should be easily searchable.<\/p>\n Otherwise, you can contact your realtor or real estate lawyer. \u00a0They can run checks in the land registry of the tenant\u2019s current and previous addresses. \u00a0From there you\u2019ll get the names of the previous landlords which validates the information the tenant gave you.<\/p>\n Most provincial or city-specific landlord associations have tenant screening assistance services. \u00a0They can check to see if the tenant was ever reported by previous landlords.<\/p>\n Whatever you do, don\u2019t use a credit report provided by a tenant. \u00a0How easy is it to create a fake report? Pull your own data.<\/p>\n This part of the tenant screening process requires the tenant\u2019s permission. \u00a0You cannot perform a credit check on someone without their consent (more on that later).<\/p>\n Running credit checks on tenants has become fairly easy as of late. \u00a0You can do so online at:<\/p>\n Here\u2019s what you\u2019re looking for when you get the credit report:<\/p>\n A tenant doesn\u2019t need to have a credit score of 775 to be considered reliable. \u00a0Not all great tenants have pristine credit<\/a>. \u00a0Using credit score as a screening criteria may make you pass up on potentially great tenants.<\/p>\n In fact, you should avoid using the score solely for screening purposes. \u00a0Look at all the data you collected so far and come to a conclusion based on that. \u00a0The screening process should identify if the tenant is a reliable employee, was a good tenant and has reasonable financial discipline.<\/p>\n With a paystub \u00a0(validated through the employer reference check) and the credit report, you can deduct whether the tenant can afford the unit.<\/p>\n Run the tenant affordability screening check. \u00a0This involves multiplying rent by 3. If your tenant doesn\u2019t meet that monthly threshold, getting around to paying on time may be difficult.<\/p>\n In instances where a couple is renting the unit together, calculate affordability based on one salary. \u00a0If one gets fired, can they still afford to live there?<\/p>\n Where a couple wouldn\u2019t be able to afford rent on one salary, use your common sense.<\/p>\n If they\u2019re renting in an expensive market that no single tenant could afford, give some leniency. \u00a0Similarly, if you found from the employer reference checks they\u2019ve been working there for 5+ years, it\u2019s unlikely they\u2019ll lose their jobs anytime soon.<\/p>\n Throughout the tenant screening process, there\u2019s a few points along the road that can get you in trouble:<\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\nWhat\u2019s the Tenant\u2019s Ideal Income to Rent Ratio?<\/b><\/h3>\n
Will All Prospective Tenants Have Rental Histories?<\/b><\/h3>\n
Save Time by Pre-Screening Tenants With a Solid Listing<\/b><\/h2>\n
The 10 Step Tenant Screening Process<\/b><\/h2>\n
Step 1: Pre-Screen Prospective the Tenant Over the Phone<\/b><\/h3>\n
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Step 2: Send the Tenant an Application Form<\/b><\/h3>\n
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Step 3: Look at the Tenant\u2019s Online Footprint<\/b><\/h3>\n
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Step 4: Talk to the Tenant During the Property Visit<\/b><\/h3>\n
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Step 5: Ask for the Tenant\u2019s Photo IDs During the Visit<\/b><\/h3>\n
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Step 6: Verify Tenant\u2019s Employer Information Yourself<\/b><\/h3>\n
Step 7: Contact Previous Landlord References<\/b><\/h3>\n
Step 8: Check the Tenant With Your Local Landlord Association<\/b><\/h3>\n
Step 9: Conduct <\/b>Legal<\/b> Credit Checks on the Tenants<\/b><\/h3>\n
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Step 10: Calculate the Tenant\u2019s Rent Affordability<\/b><\/h3>\n
Tenant Screening Tactics That Can Get You in Trouble<\/b><\/h2>\n
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