How To Screen Tenants For Real Estate Investors
Screening potential tenants for your investment property is the most important step to making sure your life, and your current tenants lives, are much easier. Every great landlord needs to know how to screen their tenants.
You are providing not only a rental, but a whole living experience for your tenants. You want people to join your team that are excited to live in your units and make the unit their home.
If you do not take the time to screen new tenants it can be an absolute nightmare situation for you and your current tenants.
Once a tenant has signed the lease and has moved into your unit, it is very difficult to have that tenant leave. If the tenant is causing a whole lot of problems at your unit and is paying rent on time, it is even more difficult to remove the tenant.
The following article will help you make the right choice when picking your next tenant.
Bad Tenants Costs Time and Money
What is a bad tenant?
We have all heard the nasty landlord horror stories about that tenant from hell who just made everyone’s life miserable. But, what does that look like?
In my personal experience a bad tenant destroys the whole cohesiveness of a rental unit. They get into arguments with other tenants, they do not respect shared spaces, they do not follow the properties rules, they leave a mess, they cause noise complaints, they make your phone ring with complaints from tenants and neighbours, and you are always chasing them to collect rent.
The bottom line, they take up a lot of your time.
Managing cash flow properties is already time consuming without the added nousience of trying to keep the peace with a bad tenant.
When the relationship has reached a tipping point and it is time to part ways, actually getting rid of the bad tenant is a long, drawn out process.
More time taken away from you.
Each province has different residential tenancy acts and rules and regulations around evicting a tenant. See the individual residential tenancy acts below for more details.
Have a Killer Application Form
You need to be giving any potential tenant that arrives at your unit for a showing an application form to be filled out and signed by them.
I print out copies of the application form ahead of time to make it real easy for the tenant. I give them a copy after the showing and ask them to fill it out, sign, then just simply take a photo of both sides and text it to the number on the form.
Not everyone has a scanner for their computer and I want the process to be as simple as possible.
The goal is to be able to read the information the tenant has filled out. The quality has always been good this way and blurry images have never been an issue.
The point of the application form is to learn as much information as possible about your potential tenant.
The application form can include personal information, residential history, employment history, references, current loans and automobile info.
Here is an example application form that I use: Example Rental Application
Ask For At Least 3 Previous Landlord References
Commonly, landlords only ask for one previous landlord when collecting the application info. I think they are missing a real opportunity here to really screen their tenants appropriately.
The previous landlord is your best available insight into learning about your tenant. I always ask the tenant to fill out 3 previous landlords along with the dates they stayed with them.
Short leasing terms are a red flag for me and should be investigated more deeply.
I prefer calling the landlord reference as apposed to email. The calls are short and to the point. I typically only ask 3 questions
Did they pay rent on time?
Did they cause any difficulties?
Would you rent to them again?
I find calling to work better than email as emails can be put off and forgotten. When a landlord picks up the calls do not take much of their time and you can get all the info you need right away. Let’s face it, the clock is ticking when you have an empty unit and you want to get the screening process over as quickly as possible.
Get Current Employment Info
An important piece to the application form is current employment information of the tenant. You want to ensure the tenant has not bitten off more than they can chew and is able to pay for your rental unit.
You may not want to rent to a tenant who is only bringing in $2,000 per month when your unit costs $1,800 without utilities included.
When callings current employers I usually just quickly call to verify the information the tenant has provided is accurate.
What if The Tenants Never Rented Before?
If the tenant is a student they potentially have never rented a unit before and may not have a current job.
In these situations I always ask for a Guarantor to sign onto the lease.
A Guarantor is a co-signer that agrees to be legally responsible for the rental unit. If you are unsure the tenant will be able to pay the rent, a Guarantor can sign on and be responsible for that rent being paid on time.
If you are renting to students and have more than one person on the lease, have each tenant provide a guarantor and on the guarantor form state how much of the total rent the Guarantor is responsible for.
Check the Rental Database
Here in Nova Scotia, where I am located, I use a company called tencheck.com for my rental database screening.
The database will tell me things like if the tenant has had previous noise complaints, has ever been evicted, has left a unit without paying rent, had a deposit not refunded do to damage to the unit, and had a judicial order awarded to the landlord.
I am sure there are other rental databases out there, if you are currently using one let me know about it and how it is working for you in the comments section.
Get the Deposit In Full
Tenants may ask to pay the deposit partially or in chunks.
In my personal experience this should have been a red flag to me, and I should not have allowed it, or signed on that tenant.
If a tenant is struggling to pay the deposit in full the rental unit may be too much for them to handle.
Typically a deposit is one half of one month’s rent. This should be given in full before you even think about writing out the lease.
The lease should be the very last step of the tenant screening process, do not rush into anything, locking yourself in for potential disaster.
Sign a Fixed Term Lease With Your Tenants
Starting a tenant on a fixed term lease is a very easy way to test out the tenant / landlord relationship.
A fixed term lease allows for an easy exit. At the end of the term, the tenant must leave.
If unsure about the tenant just start with 3 months.
When you sign into a periodic, year-to-year lease with a tenant they can choose to stay forever. If they are paying rent of time, and following all the rules, the only person who can decide to leave is the tenant. You, as the landlord, can not remove the tenant if the tenant continues to renew their year-to-year lease.
Residential Tenancy Act
The purpose of residential tenancy acts is to provide landlords and tenants with an efficient and cost effective means for settling disputes.
Prior to even looking for a potential tenant you should be well versed in your provinces tenancy act.
You should definitely check out your provinces tenancy act below:
New Brunswick: http://laws.gnb.ca/en/showdoc/cs/r-10.2
Finding the right tenants for your real estate investment are vital to ensuring your cash flow property is producing every month.
If you rush the application process and just stick any tenant in there, it may lead to a nightmare situation for you, and your other current tenants.
This article has shown you:
The consequences of having a nightmare tenant
How to develop a killer application form
Application form example
Solutions for first time tenants
Deposit red flags
Fixed Term Lease vs. Periodic
Information on the Residential Tenancy Act
Follow these steps and you should be on your way to landing an amazing tenant for your investment property.