Finding great tenants is a staple of any property management business. We meet many landlords in our journey. Some are professional property managers and others are individuals who want to manage their own rentals. I am always amazed at how other landlords screen their prospective tenants. It should be more than just money up front, but unfortunately we hear these stories quite frequently.
While filling properties with tenants and collecting rental payments is a great way to build real estate investment wealth, there are several things you should consider before selecting a tenant for one of your rental properties. These steps take a bit of extra time and effort, but they can save you a lot of money and stress down the road.
First, you should always run a prospective tenant’s credit report. If an applicant has several recent negative items on his or her credit report, this can be an indication that the applicant may have trouble making rental payments. At Solid Source Property Management, we actually analyze the debt to determine what trends we can find. Also realize that not every landlord or even management company can secure a credit report. There are a fair amount of rules and regulations that are required when you access someone’s credit report. There are plenty of services which provide a “modified” report – but we feel those don’t accurately reflect a tenant’s ability to pay.
Make sure you research the applicant’s employment history. You need to make sure that they can afford to rent your property and that you verify their income and how long they have worked there. You will want to make sure that the prospective tenant has a history of stable employment. Job hopping may also be an indication of instability which is something you want to avoid as a landlord.
If the applicant is self employed, ask for copies of his or her tax statements for the last two years. This will show whether the applicant earns sufficient money to afford your rental unit. We recommend you review their expenses in addition to their income. If they write off a lot of expenses, this may impact their ability to pay rent.
Check is the applicant’s rental history. Don’t be afraid to contact previous landlords to inquire about the applicant’s payment history. Previous landlords will be happy to tell you about bounced checks, missed payments, damage to a rental unit, or any other information that will alert you to potential problems with the renter.
Finally, consider running a criminal background check before accepting an applicant. There is a lot of concern about running criminal background checks, but we still believe this is a very important thing to do. If an applicant has a criminal history and the landlord willing puts that tenant into a property, the landlord may even be held liable for the criminal actions of a tenant in some circumstances.