Venturing into the real estate marketplace can be an intimidating and outright terrifying undertaking. Apart from raising the capital needed to break into the field, many landlords have to deal with the risk of taking up new tenants. There’s no denying that the success of any rental income property relies on the kind of tenants that use it. For this reason, landlords must put lots of thought into the tenant selection process to ensure their property remains profitable. When you have excellent tenants, you wouldn’t have to worry about the safety of your property or receiving the rent in time. However, problematic tenants only breed stress, worry, and constant confrontation.
Q3 2021 hedge fund letters, conferences and more
Therefore, landlords must conduct a thorough evaluation of prospective renters to ensure they find a suitable tenant. Screening them can help property proprietors save thousands of dollars in lost revenue, damages, and court costs and fees. Essentially, this includes running a credit check, confirming earnings, checking criminal backgrounds, and more. Fortunately, nowadays, verifying proof of income for an apartment has been made easier. Landlords can choose between conducting the screening themselves or hiring professional help. Regardless of how you go about this, there are a few factors all landlords must consider when screening potential tenants. This article highlights these principal factors to help shed light on how proprietors should conduct proper tenant screening.
Pre-Screen Potential Tenants
Before asking prospective tenants for applications, it's always a good idea to conduct a pre-screening. One of the best ways to do this is by asking applicants a few pre-screening queries to ascertain whether they're a good fit. This process could save you the hassle of conducting a full background check. What's more, you can leverage the power of the internet to seek more insight into your potential tenants. Checking an applicant's social media could be incredibly insightful and help you come up with a decision.
Ask For An Application
Once you've pre-screened your potential tenants, the next step would be to ask for applications. You can make use of the numerous rental application templates available online. These applications should include all the vital details you'd need from the potential tenants. In most cases, a rental application would have personal information, financial data, and employment information.
Conduct A Background Check
It's always crucial for landlords to run a thorough background check on the potential tenants. One of the main things to look out for when running a background check is a prospective renter's public records. It would be wise to avoid tenants who have been legally sought after due to unpaid child support, rent, and other financial issues. Also, ensure you steer clear of people who have been previously evicted from other rental properties. Landlords should also be wary of prospective tenants with serious criminal records or those who've served long jail terms. Although landlords shouldn't rule out applicants for having criminal records, it should be a principal factor.
Run Their Credit
Conducting a credit check is arguably the most vital step when screening potential tenants. While every piece of information is equally important, running a prospective renter's credit will reveal data about their financial health over the last few years. Doing this will help you ascertain whether the potential tenant is eligible. Moreover, since there are plenty of online tools available for running credit checks, the process shouldn't be a hassle. Even so, landlords should ensure they adhere to the Fair Credit Reporting Act (FCRA) laws.
Verify Their Income and Employment
The financial health of potential tenants is of utmost importance. The reason behind this is that you have to protect your investment. Despite how befitting a client may be, landlords must ensure they have the financial muscle required to handle the rent. For this reason, verifying a potential renter's income and employment helps proprietors decide whether they are eligible. Moreover, doing this provides insight into how stable of a job a prospective tenant has. With this information, you can rest assured to be ready for any eventuality.
A great rule of thumb to follow when verifying income and employment is the three-times rule. Essentially, the most eligible applicant should have an income that's three times the rent. Hence, it would be wise to check with their current employer to verify their employment status, title, and earnings. All this can help determine the applicant's job stability, which is a crucial consideration for a rental apartment.
Check Their Residence History
Another vital factor to consider when evaluating rental applicants is their residence history. In other words, landlords should verify one or more previous addresses for every eligible applicant. There are several reasons why this information could be beneficial to proprietors but, perhaps the main reason is to find out the type of tenant the applicant is. Confirming whether the prospective renter paid their rent on time can provide incredible insight into their payment habits. Also, finding out how the applicant interacted with their previous neighbors will help landlords determine how they could best fit their property. You could even contact their previous landlord and make inquiries into how the tenant treated their property.
Conduct Interviews
Although you may have all the information and documents needed to vet the applicants, interviewing them is always a step in the right direction. Many professionals recommend proprietors go over the applicants' paperwork and findings to give them a chance to clarify any details. It's worth noting that Federal fair housing laws protect rental property applicants against discrimination. Therefore, turning down eligible applications due to bias of any kind could be grounds for a lawsuit. Landlords should base their decision on fair terms and make their choice without prejudice.
Final Thoughts
Finding astute tenants for an investment property isn't a walk in the park. Landlords must ensure they don't take up problematic tenants who will either cause damage to the property or fail to adhere to the rules. Not only can this reduce the value of your rental property, but it can also cost you a great deal of financial and legal stress.
