Most of the real estate investors we’ve met that are selling all their property are usually doing it because they are tired of dealing with tenants. It’s the same reason a lot of people we know are scared of becoming real estate investors. They have heard horrible stories of bad tenants. And we totally understand. When we had bad tenants we had many conversations about selling everything we owned and getting out of the real estate business.
Most of the people that contact us with hard to rent properties or bad tenant stories have made one of two mistakes. They’ve bought a property that doesn’t easily attract good quality tenants (or bought a property with bad tenants in place) or they made an exception to their tenant selection process and let someone move in that should never have been approved.
We’ve had all of these problems happen to us. We eventually just sold the properties that never attracted the good tenants and started following very strict tenant selection criteria. No matter how anxious we are to get cash coming in on a property we won’t deviate from our criteria. We know how badly that can go so we’ll happily wait another month to get the right tenant in a property.
And you know what? It’s working really well! Our tenants aren’t perfect but most of our tenants are pretty awesome! They care about the home, take care of it, pay their rent on time and respond to us when we need them.
So what do you need to do to select the best tenants from your pool of applicants? Here’s a checklist to help you.
Tenant Screening Checklist
1.Tenant Application with Signed Consent permitting you to do a credit check and reference checks (you may also want to have a separate letter signed by the prospective tenant authorizing you to verify their income from their employer).
Most states and provinces have application forms that are ok to use for that area or a local landlord association will usually have one you can use that is legal for use in your area. We also recommend you have each person over 18 that is going to live in the home complete this form and provide you with their consent. And make sure all children and pets that will be living in the property are named on the application and in the lease (with their birth dates).
2. Confirm their identity by asking for their Provincial or State Issued Drivers License. We usually snap a photo of it so we have a copy for our records. The big thing we look at is that their license confirms they are who they say they are and that the address on the license matches the address they’ve given us and shows up on their credit report!
3. Credit History: The score matters but it’s really not just about their credit score. You want to use the credit report to see if they are generally responsible with their use of credit, if they have a bunch of people after them for payments, and if there are any gaps in their credit history which could be an indication of a bigger issue like incarceration. If someone has filed bankruptcy in the past that doesn’t mean we wouldn’t take them as a tenant. What’s more important to us is what they are doing with their credit and their finances AFTER they’ve filed for bankruptcy. If they have filed bankruptcy in the past and again are in financial trouble then that is a giant red flag for us.
4. Income and Employment Verification: This one is tricky because an employment letter is easily forged, and many of the larger companies or government affiliated companies will not tell you anything about an employee. Even with the written consent of their employee they still will not tell you anything except to verify that person works at the company. So this one is not always straightforward but here are a few of the things we do to get as much information as possible.
- Google the name of the person in quotes. For example“Dave Peniuk”. If hundreds of results come in, specify a city. Type in“Dave Peniuk” Burnaby. Sometimes you’ll find a reference to the person on a company website, a LinkedIn Profile, a Facebook Profile or some other online page that can give you more information and possibly verify the information you’ve been given.
- Find a number for the company they work for using the phone book or an online search.We never bother to call the number the person gives usto call because there is no way for us to know that it’s not just a friend’s cell phone. At least if we track down the company number ourselves and get to the person who can verify that the tenant works there we feel pretty confident that part of the application is true.
- Ask for a pay stub to verify the income if you’re concerned. Keep in mind that painters, servers, and other service professionals may actually collect a lot of their income in cash so their pay stubs may not be a real indicator of their income.
5. Rental History: Basically you want to see how often they move. If they have moved a lot then, unless there is a good reason the moving will stop, you can expect a short term tenant. You also want to make sure that all the information you have checks out with where they say they’ve lived. Finally, look for gaps. If you discover an address is missing or there is a time period where they don’t have an address listed you’ll definitely want to find out why they didn’t disclose it. Was there a dispute with the landlord? Were they out of country? Or were they somewhere that they didn’t want you to know about?
6. Do they have a story? This is a BIG one. The most troublesome tenants we’ve ever had have been the ones that had big stories right from the beginning. If you have a tenant with a story listen carefully to the story. Are they blaming other people for their situation? Are they giving you a big story about their last landlord being evil? If you’ve asked about gaps in their employment, missing addresses in their history, or a credit issue and the answer has been a story that sounds a lot like it’s all someone else’s fault then you probably want to run quickly in the other direction.
7. Do they do what they say they are going to do? The best tenants show integrity and accountability from the start. Do they show up to see the property on schedule or maybe even a little early? Do they deliver the application and deposit when they say they will? Do they return your calls or emails promptly? Tenants that do not do these things in the beginning will never do these things later on. And tenants who ask for a bunch of exceptions and make you work super hard to convince them to rent from you are usually the first ones to complain, first ones to ask for exceptions when they make a late rent payment and the first ones to cause you a ton of grief. Look at how the tenant is behaving and ask yourself if this is someone with integrity, accountability and respect for others? If they do what they say they are going to do you’re off to an excellent start!
You may be wondering where references are on this list. It’s not that we’re saying you shouldn’t check references but we don’t put much weight in references. If someone asked you for references are you going to give them a nice cross section of people to call or are you going to give them the best people? And landlord references aren’t usually worth much either. Right or wrong, we only half-heartedly check landlord references. Mostly we just ask for landlord references to see what the tenants will say. The reality is we’ve found that current landlords never say anything to deter you from renting to someone so we rarely bother to call.
Even if the tenant is bad the current landlord is not likely to say so – after all they want them to move out! We will call past landlords (that is, the landlords before the current one) because they may be more up front given that the tenant is not trying to leave their premises right now but we usually do this as a final check, after we’ve gone through everything else. By this time we’re pretty confident that the person will make a great tenant, and the past landlord usually just verifies that fact.
Hopefully by using this checklist you’ll have an easier time screening your next tenants. And with better tenants we’re pretty sure you’ll be a much happier investor!
Published November 4th, 2010