Renting out property is a significant investment that requires careful consideration when selecting tenants. Finding reliable, responsible, and trustworthy tenants is crucial for maintaining the value of your property and minimising potential issues. Tenant screening is a process that involves evaluating applicants to determine their suitability as renters. Our comprehensive guide will walk landlords through the process of screening potential tenants effectively.
Establish Clear Criteria
Before starting the screening process, landlords should define their tenant selection criteria. These criteria will help streamline the screening process and ensure consistency in evaluating all applicants. Common criteria may include:
Credit History: Look for a strong credit history with a satisfactory credit score. A credit report will give insight into an applicant's financial responsibility and their ability to manage debt.
Income Verification: Ensure that the tenant's income is sufficient to cover the rent comfortably. A common guideline is that the rent should not exceed 30% of the tenant's gross monthly income.
Rental History: Check for a positive rental history by contacting previous landlords to inquire about payment timeliness, property care, and overall behavior as a tenant.
Criminal Background Check: While you can't discriminate based on criminal history, you can assess whether an applicant's history presents a legitimate concern for the safety of other tenants and the property.
Request Detailed Application Forms
Develop a comprehensive rental application form that collects essential information about potential tenants. This form should include:
Personal Information: Full name, contact information, date of birth, and social security number.
Employment Information: Current employer, job title, income details, and length of employment.
Rental History: Previous addresses, landlord contact information, and rental periods for the past several years.
References: Personal and professional references, preferably not related to the applicant.
Co-applicants: If there are multiple tenants, gather information for each individual.
Verify Identity and Income
To ensure that the applicant is who they claim to be and that they have a stable income, landlords should:
Request Photo ID: Collect a copy of a government-issued photo ID, such as a driver's license or passport.
Income Verification: Request recent pay stubs, employment verification letters, or tax returns to confirm the applicant's income.
Contact Previous Landlords
Reaching out to previous landlords is a critical step in understanding an applicant's rental history and behaviour. When contacting previous landlords:
Prepare Questions: Ask about rent payment history, property care, any lease violations, and whether the tenant left on good terms.
Red Flags: Pay attention to any repeated late payments, damage to the property, or reports of disruptive behaviour.
Credit Score and Check History
A credit report provides valuable insights into an applicant's financial responsibility. Obtain written consent to pull their credit report and look for:
Credit Score: A higher credit score generally indicates responsible financial behaviour.
Outstanding Debts: Check for outstanding debts and any history of bankruptcies or evictions.
Evaluate Rental Payment History
Timely payment of rent is crucial for a smooth landlord-tenant relationship. Assess an applicant's history of on-time rent payments by:
Requesting Rent Payment Records: Ask for documentation showing their payment history with previous landlords.
Rental References: Inquire about rent payment consistency when speaking with previous landlords.
Consider the Need for a Guarantor
In some cases, an applicant might not meet all the criteria on their own. If this is the case, they will need to include a guarantor in the tenancy agreement. A guarantor, often a parent or guardian, is an individual who agrees to be responsible for the rent if the tenant fails to pay. When considering a guarantor:
Check Guarantor's Financials: Apply similar screening criteria to the guarantor, including credit history and income verification.
Communication: Clearly communicate the guarantor's responsibilities and ensure they understand the commitment.
Be Aware of Fair Housing Laws
Throughout the tenant screening process, it's essential to be aware of and adhere to fair housing laws that prohibit discrimination based on factors like race, religion, gender, disability, and more. Treat all applicants consistently and fairly, following the law.
Make an Informed Decision
After collecting and reviewing all relevant information, landlords should make an informed decision about the applicant. For which, you should consider the applicant's:
Financial Stability: Do they have a stable income to cover the rent and other expenses?
Rental History: Did they maintain a positive relationship with previous landlords and fulfill their rental obligations?
Credit History: Is their credit history satisfactory and reflective of responsible financial behaviour?
Background Check: If applicable, does their criminal history raise concerns for the safety of other tenants or the property?
Communicate the Decision
Once you've made a decision, promptly communicate it to the applicant. If you choose to reject an applicant, be prepared to provide a reason that is consistent with your selection criteria.
Document Everything
Throughout the tenant screening process, maintain thorough records of all interactions, applications, references, credit reports, and decision-making. This documentation can be invaluable in case any disputes arise in the future.
Protect Tennat Privacy
While conducting the screening, ensure that you handle personal and sensitive information with care. Protect tenant privacy by storing documents securely and following data protection regulations.
Summary
Screening potential tenants is a crucial step in ensuring the success of your rental property investment. By establishing clear criteria, collecting comprehensive application forms, verifying identity and income, contacting previous landlords, checking credit history and rental payment history, and considering the need for a guarantor, landlords can make informed decisions that contribute to a positive and mutually beneficial landlord-tenant relationship. Always stay informed about fair housing laws and maintain accurate documentation throughout the process to protect both your interests and the rights of applicants.