Saturday, May 31, 2014

Creating a System For Screening Tenants

Sometimes it's hard to say no when you have someone who wants to rent your apartment. The bills still need to be paid but you have a vacancy. That means not only less money coming in, but sometimes increased expenses if your tenants normally pay the hydro or gas bills. Often landlords will jump at the first interested tenant who is ready to sign on the dotted line. I've done it, and I have also learned the hard way how much of a mistake this approach can be. That's why you need a simple and straightforward system to help you find your next tenant.

1) Pull a Credit Report.

I always require a completed application that gives me authorization to pull a credit report. I also get a small deposit to make sure that the applicant is serious. If I reject the applicant I return the deposit, but if they change their mind then it's non-refundable. Before I made this policy change I pulled a few credit bureaus only to be told afterwards that the applicant decided against the apartment. One woman even asked me for a copy of her bureau to show to another potential landlord (you are not allowed to provide a credit report to an applicant by the way)!

I always check references, and I consider a previous landlord's opinion more carefully than the current one if there is a difference of opinion. Keep in mind that a current landlord may see you as the solution to an existing tenant headache. Previous landlords on the other hand have nothing to lose by telling you the truth. I don't care if I have to call a landlord a thousand miles away. A few long distance phone calls are worth it compared to the financial and physical damage the wrong tenant can do to your rental property. Finally, in spite of how tempting it can be I always stick to the system. If an applicant doesn't meet my minimum credit requirements they don't get the apartment without a co-signer (or some other method to cut down on my risk). If I find out they lied about anything on the application they don't get the apartment - period.

Credit reports and tenant applications are beautiful things. There are a few companies where you can sign up and pull credit bureaus. If you check out you will find one of them. A lot of people don't realize just how much information is on their credit report. If someone thinks they can fill out an application and just leave out addresses with unpaid rents guess what? There's a good chance it's on their credit report. Even if the landlord didn't pursue the debt and there is no record of unpaid rent, if the applicant was there for any significant period of time chances are that the address is listed on their credit report as a previous address. If that address is not on the application I want to know why they didn't tell me about it.

It's not that hard anymore to check out a long distance address with free sites like If a previous landlord is listed as a reference at a particular address, you can do a search to see if there is anything fishy about the reference. If I find an address on the credit report that is not listed on the application I might do a reverse lookup by address to get a name and phone number. If I want to see what the building looks like or want to know what type of building it is I can check out Google Maps. Once I found that the street address didn't even exist for the city listed on the application. Doing reference checks is extremely important, so you want to make sure you are not just talking to somebody posing as a past landlord.

That said, once you look over the credit report and do your reference checks keep in mind that people do make mistakes. Often it is a judgement call on how much risk you are willing to take. If you have a less than desirable apartment you might have to be a little less picky. For me, I would rather have a great place in a great neighborhood so that I can attract - you guessed it - great tenants. If you create a desirable unit and take great care of your tenants and the building you will find it much easier to avoid a potential vacancy. You can spend less time second guessing that questionable application and simply move on to the next applicant.

Am I little bit paranoid? Maybe. I have heard all the stories from people who are terrified of becoming landlords. If I am a bit paranoid, in my opinion people who are afraid to get into the game are right off the charts. Rental property is an investment, but it's not really a passive one. Like any job you need to know what you are doing. You won't have all the answers on your first day and likely you won't have them all on your last. I've learned a few hard lessons along the way and no doubt will learn a few more, but I do know that if you are willing to pick yourself up and press on the rewards are worth it.