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Landlord Survival Guide: Master the Art of Tenant Screening

Posted On Monday, 20 November 2023 09:26
Landlord Survival Guide: Master the Art of Tenant Screening

Real estate investing has gained popularity in recent years due to the industry's possible return on investment. Investors dream of using it to create a passive, secondary income stream. However, many otherwise enthusiastic entrepreneurs either hesitate or choose a less capital-intensive route like wholesale real estate for the same fundamental reason:

Dealing with tenants can be both challenging and expensive.

Thankfully, countless people do it daily, and you can, too. You just need to consider tenants an investment, like you did the property in general. An investment deserves to be protected. The only way you can do that is by creating an exceptional experience for tenants to keep them happy and in place. The work has to start right away to make this happen.

This is all significantly more straightforward than it may sound. With the proper knowledge and tools, landlords can make the best screening decisions possible moving forward.

The Importance of Background Checks

Whenever you start interviewing potential tenants, you need to go on far more than just your initial impression of someone before deciding. To avoid unwanted issues, you need a complete picture of who they are, which is precisely what a background check will provide.

A person's credit history is one of the most significant factors that a proper background check will show you. You'll get to see not only their credit score but also their payment history, the amount of outstanding debt they have, and more. This clearly indicates whether someone is capable of accepting the financial responsibility of renting from you.

You'll also get a look into a person's criminal history - something of paramount importance in general, but especially if you're renting out space in a multi-family dwelling. As a landlord, you are responsible for creating the safest environment possible for all your tenants. You can't do that unless you know exactly what you're dealing with from a criminal perspective.

A background check will also help verify someone's employment details. You'll get their job title, the current employer they work for, and the amount of income they bring home. At a bare minimum, you'll see if this information aligns with what you have been told during face-to-face meetings.

Other aspects of a person's life that you can go into detail on via a background check include their rental history and identity verification. Knowing someone's rental history is important because they're attempting to rent from you. If they have a history of less-than-desirable outcomes with past landlords, the chances are high that you'll go through something similar. Finding out now can avoid a considerable amount of trouble.

Verifying that someone is who they say they are is also important. Background checks can help with this by using documents like a driver's license, passport, and social security numbers.

Reference Verification Is Essential

When many landlords begin to screen tenants, they ask for personal and professional references to continue to find out as much as they can about the person they're about to rent to. However, just because someone will provide you with those names and telephone numbers only tells part of the story.

First, you'll want to ensure that the references are who they say they are. For example, if someone gives you a phone number claiming to belong to their boss, go onto their employer's website and ensure the contact information lines up.

Naturally, there will be certain types of references that are difficult to verify - particularly those that are personal. A prospective tenant isn't likely to list someone as a reference if there is a risk of that person saying something negative. Still, you'll probably want to prohibit using a spouse or close family member as a reference to get some sense of objectivity.

Likewise, when conducting reference verification, ask the right types of questions of the people you'll be speaking to. Ask how likely this person is to pay their rent on time, for example. Inquire whether they have a history of causing trouble with neighbors or what they're like regarding communication. This can all help shed invaluable insight into who someone is and how they behave.

Don't Forget Credit Card Assessments

To return to the idea of a person's financial history, it's also important that your tenant screening process includes a thorough look at someone's credit card history. Again, just looking at their credit score alone only tells part of the story.

How much outstanding credit card debt does a person currently have? What do their monthly minimum payments look like? What is their overall debt-to-income ratio? When was the last time they opened a new account, and what is the age of their oldest one? These are all essential questions to answer because they can help you understand whether someone lives beyond their means.

If someone is having difficulty making their minimum monthly credit card payments every month, the odds are that they'll also need help making the rent. Even though they have yet to have any late payments up to this point, the delicate balancing act can continue forever.

Due Diligence is Key to Successful Landlord-Tenant Relationships

Ultimately, strategies like those outlined above are about more than just putting together an effective tenant screening process. They can help landlords make the most informed decisions regarding potential renters, saving a lot of time and trouble.

Landlords can mitigate risk from various angles by mastering the fine art of tenant screening. This type of due diligence also reduces the likelihood that rent disputes or property damage will occur down the road.

Ultimately, it also helps to create the most harmonious landlord/tenant relationship possible, all while safeguarding the property investment you've worked so hard to achieve in the first place. So, think again the next time you think it might be okay to skip out on tenant screening and just "take your chances" with the next round of applicants.

 

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