adminOnce you have become a property investor you need to start earning some income from that property through renting out the property. This means that you need to engage a tenant that is capable of looking after your property well and pay the rent on time. This can be achieved through a tenant screening process.
The tenant screening process typically begins when the prospective tenant (each adult applicant) completes a rental application, pays an application fee and perhaps a holding deposit. Tenant screening is a process used primarily by residential landlords and property managers to evaluate prospective tenants. The purpose is to assess whether the tenant will fulfil the terms of the lease or rental agreement and will also take great care of the rental property in question.
The process will help the property owner to decide whether to approve the applicant conditionally (such as requiring an increased deposit or cosigner) or deny tenancy. Valid Government-issued photo identification is typically required to confirm the identity of applicants. Normally a passport, driver’s licence or national ID are acceptable ways to identify a prospective tenant.
Rental applications are designed to collect personally, identity information (name, social security number and date of birth, etc.) address, employment, criminal and eviction history. A signature is generally required, attesting to the accuracy of information provided, agreeing to certain terms and conditions and authorising procurement of a tenant screening report. Tenant screening reports contain one or more of the following elements: Consumer credit report (with or without a score) from a reputable national credit bureaus;
- Eviction records search
- Criminal records search
- Sex offender registry search
- Rental references
- Employment verifications
- Recommendation, based on the landlord’s criteria (parameters). The landlord also needs to ask and get answers to the following questions:
Why are you moving?
This question can tell you a lot about the tenant, so listen closely. You want to look for legitimate reasons such as changing jobs or wanting more room. Beware of red flags for moving, such as being evicted or the tenant keeps getting into arguments with their landlord/superintendent/neighbour.
When do you plan on occupying the property?
This can tell you a lot about the tenant as well. If they want to move in tomorrow, they may not be the most responsible person. If they were previously renting, most landlords require 30 days notice to terminate a lease, and if this tenant wants to move in tomorrow, something may be off. Obviously special circumstances do apply such as a pay cut, a sudden job transfer or domestic abuse.
What is your monthly income?
This question can help you determine if the prospective tenant will be able to afford the apartment. You will want to look for a tenant whose monthly income is no less than two and a half times the monthly rent. For example, if the monthly rent is US$1 000, you will want the tenant to make no less than US$2 500 a month. Additional information, such as how much debt they have will impact their ability to pay on time.
Do you have the security deposit and first month’s rent available ?
This will speak of their financial situation. If they do not have enough money up front and ask to pay the security deposit a week after moving in, a little each week or similar, this trend will continue down the line until they can no longer afford their monthly rent. You do not want to start a tenant relationship where the tenant already owes you money.
You should never allow a tenant to move in before they pay you the full amount. The security deposit is important in case of damages.
How many people will be living on the property?
You will want to look for a maximum of two people per bedroom. The fewer people in the apartment, the less wear and tear there will be on your property. Additionally, most municipalities and fire departments limit the number of people that can legally rent and reside in an apartment.
Can they provide references from their employer and former landlord?
If the prospective tenant hesitates or makes excuses as to why they cannot provide references, they most likely have something to hide. References from an employer will help verify income and stable employment. You will want references from a former landlord because their current landlord may not tell you the whole truth because they may just be trying to get the tenant off of their hands. Get the information on your own.
Does he/she consent to a credit and background check?
If you require these checks and the prospective tenant will not consent to them, this will eliminate them from your prospective tenant pool immediately. You must have the prospective tenant sign a form giving their permission to run these checks. Verbal consent is not binding.
Ever been evicted?
While the prospective tenant may not tell the truth, it is still worth asking. Directly asking the prospective tenant if they have been evicted will give the tenant an opportunity to explain the situation. Good people can fall on hard times and the eviction may be one blip in their lives and not a measure of their financial standing. If the eviction was for causing damage or excessive noise, these behaviours are not likely to change.
Any pets?
If you have a “no pets” policy, a prospective tenant with a pet will be a deal breaker. It is best to know right away, so you do not waste any time interviewing them.Any questions?
This will give the tenant their chance to ask questions about the apartment, location, screening process, or anything else that comes to mind. If there is a feature of your property or something that is unappealing to them about the screening process, you will most likely be wasting your time showing them the property.
Disclaimer
GMRI Real Estate is a property holding division of GMRI Capital which owns, manages, develops and leases out its own property. We do not act as agents for the public or third parties. This article is provided “as is” for informational purposes only as a public service, not intended for trading purposes or advice. Prior to execution of any property/real estate trade, you are advised to consult your authorised financial advisor/real estate agent to verify the accuracy of all information. Neither GMRI Real Estate nor any independent provider is liable for any informational errors, incompleteness, delays or for any actions taken in reliance on information contained herein.
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