How to Choose the Best Tenant for Your Rental
7 Tips for Placing a Great Tenant in Your Investment Property
There are good tenants and there are bad tenants. While no screening method is fool-proof, there are certain factors you should look at which will give you a better chance of finding a great tenant for your rental. Following these seven tips can help you make the best choice.
1. Follow the Law
Landlords must treat all prospective tenants equally. There is a law, known as the Federal Fair Housing Act, which is designed to prevent discrimination against certain classes of people in any activity related to housing. In short, you cannot discriminate based on:
- Race or color
- National origin
- Familial status (families with children)
2. Choose a Tenant With Good Credit
You want to look for a tenant who is financially responsible. If they are responsible with paying their bills, there is a strong chance they will pay their rent on time and be responsible with your apartment. Checking a tenant's finances is a two-step process:
A. Verify Income:
- Ideally, you will want to find a tenant whose monthly income is at least three times the monthly rent.
- Ask for copies of their pay stubs.
- Call their employer directly to confirm their employment, length of employment, attendance record and monthly earnings.
- Do they have a history of paying their bills on time?
- Check their income to debt ratio.
- Even if their income is three times the monthly rent, you have to factor in how much debt they have.
- For Example: The rent is $1000 per month. Tenant A is making $3000 a month, but has $2400 in debt payments every month. This tenant may have a more difficult time affording the apartment despite their monthly income. Tenant B makes $2500 a month, but has no debt. This tenant could be an excellent candidate to pay the rent even though their income is not three times the monthly rent.
- Look for prior evictions, civil judgments against or bankruptcies.
3. Perform a Criminal Background Check
Criminal information is public record, and can be viewed at various court houses. This check will turn up both serious and minor offenses. You will need the tenant’s name and date of birth to run one. Keep in mind that those with a criminal record may try to falsify this information, so make sure to check a valid ID to verify that they are who they say they are.
A Thorough Criminal Check Will Include:
3 Points of Caution:
- Certain states, such as California, prohibit landlords from discriminating against renters with certain criminal convictions. As a landlord, you may have an easier time justifying your rejection of a prospective tenant with a drug or violent crime conviction than you would rejecting a tenant with 50 speeding tickets. This is because drugs or violent crimes can jeopardize the safety of other tenants.
- There is no nationwide database of criminal records, so it may be hard to do a thorough background check.
- Doing a criminal check yourself can be very time-consuming. It may be best to hire a reputable tenant screening company to perform this check for you. It can often be combined with the credit check, for an additional fee of course.
4. Look at the Tenant's Rental History
If possible, you should talk to at least two of the tenant's previous landlords. This is because, if the applicant was a problem tenant, the current landlord may want to get the tenant off their hands and may not be as truthful.
Questions You Should Ask:
- Did the tenant pay their rent on time?
- What was the reason for the move? Was the tenant evicted for non-payment of rent or for breaking the landlord’s rules?
- Did the tenant give 30 days' notice prior to moving?
- How did they keep their apartment? Were they clean?
- Did they cause any damage to the apartment other than normal wear and tear?
- Were they respectful of their neighbors?
- Did they complain often?
Of course, if the applicant is a first-time renter, a student or a recent graduate, they may not have a rental history. In this case, you can require a co-signer for the lease.
5. Choose a Tenant Who Is Stable
On their application form, look at the tenant's prior addresses and employment history. Do they move or switch jobs often? If they move often, this pattern is likely to continue and you will soon have a vacancy on your hands again. If they have not shown consistent employment, they may not be able to afford the apartment in three months and you will be left starting your tenant search from scratch or dealing with an eviction.
6. Maximum of Two People Per Bedroom
The more people per apartment, the more noise and the greater the wear and tear on your investment. Although HUD does not have specific rules regarding the number of occupants per bedroom, a rule of a maximum of two people per bedroom is considered reasonable under the Fair Housing Act, with the following exceptions:
- State and Local Law:
- If a state or locale has specific housing codes, then the landlord must follow them.
- Size and Configuration of Dwelling:
- A 500 square foot bedroom can hold more occupants than a 250 square foot room.
- A unit with a living room and den can hold more occupants than one without.
- Age and Number of Children:
- Refusing to rent to two adults with an infant for a one bedroom could be considered discriminatory, but refusing to rent to two adults with a teenager for a one bedroom would be considered reasonable.
- You can give a maximum number of people per apartment, but you cannot give a maximum number of children per apartment.
- Limitations of the Septic/Sewer System:
- If the capacity of the system can only tolerate a certain number of occupants in the dwelling.
7. Trust Your Instincts
You can do all the screening in the world, but sometimes your instincts are the best judge of character. You may feel that there is something off about a tenant who otherwise looks good on paper. later to find that the tenant has been using someone else's identity to apply for the apartment. Trust your screening, but do not ignore your gut.