Owning rental properties can be a great way to bring in income. One of the most difficult parts of owning rental properties is finding good tenants. A good tenant will take appropriate care of his unit, be a good neighbor to other tenants, pay his rent on time every month and give you advanced warning of his decision to move out. A bad tenant, conversely, will alienate other tenants, damage the unit and be inconsistent with rent. So how do you avoid a bad tenant? Here are some things to look out for.
The first thing to have any prospective tenant do is fill out an application. You may be able to get rental applications that you can use or adapt from a local real estate association or from online sources. You can also make your own. Make sure the application covers financial, employment and personal information. The application should also plainly request that the applicant grant permission for a background, credit and criminal history report check.
It is important not only that the potential tenant is employed but that he shows a steady employment history. If he changes jobs often that could be a huge red flag. If he cannot stay with a job very long, then there is no guarantee that he will be able to make his rent payment regularly, either.
Stable employment is a good start, but what sort of income does he make? If his income is not sufficient to make rent payments and manage the rest of a person’s regular living expenses, you may not be doing him any favors by letting rent a unit with you. Housing payments should comprise no more than about 25% of a person’s monthly income.
Everyone has some debt. Student loans, car payments, and credit cards are all common. Excessive debt, however, especially if it is consumer debt, may impact a tenant’s ability to make rent. You should also be concerned by any history of late payments, foreclosures or repossessions. This indicates a history of either poor decision making, lack of concern or financial fragility that may impact his ability to make regular payments. Whatever the case, it shows evidence that he could impact your bottom line.
A public records check will show you whether or not your prospective tenant is currently, or has in the past, been involved in a lawsuit and what the battle was over. Be on the lookout for a tenant who has been sued for back rent, unpaid child support or any other financial issues. Public records check will also show any history of eviction. Court costs and legal fees are not cheap. If others had to use the legal system to get payment owed to them or have him removed from their premises, he may be more trouble than he is worth.
One thing you should definitely check before allowing someone to rent your property is his criminal history. Some minor mischief in his past probably is not worth getting excited over. If there has been any serious crime in the recent past or regularly over time, you could be putting yourself and your other tenants at risk. Putting other tenants at risk could make you liable if a problem occurs.
Another thing you definitely want to check on before allowing someone to rent one of your properties is their rental history. Check in with former landlords. Naturally, you will want to know if the potential renter made rent payments on time and if he gave notice before moving. You should also ask if he ever got into any disputes with other tenants and if he was eligible for a return of his deposit. It is important to know if a prospective tenant has a history of damaging property or creating disturbances.
Trust Your Instincts
While your best bet is to get all of the official information available about a prospective tenant, do not underestimate the value of intuition. Intuition is not some mystical ability. Humans, from the moment they are born, begin learning to pick up on subtle nonverbal cues from others. Those subtle cues can alert us to things that we may not be noticed consciously. If you get a “really good feeling” or a “really bad feeling” about someone, pay attention to that. It could be important, too.
A landlord goes into the rental market to make an income. Doing a thorough background check on your prospective tenants is one of the costs associated with protecting your investment. Not only can it help prevent you from renting to someone who may not pay rent or may damage your unit, it can also protect your other tenants from living among dangerous criminals. Ultimately, the best choice would be to hire a company like On Q Property Management, which will screen tenants for you, execute a lease agreement and manage the day-to-day of the rental property. Get started with a FREE management consultation.