Owning and managing rental properties can be a profitable business venture. It is important that you protect your investment by carefully selecting the right tenants as a landlord. A good tenant can save you time and money later on by helping you avoiding potential evictions, property damage and non-payment.
Follow the tips below to find the right tenant for your space and to ultimately protect your property.
Before accepting applications, it is vital to make your property appealing to attract the best tenants. It is recommended that you list your property through a realtor and then show the property in good condition. If a realtor isn’t in the budget, you can post on property-listing sites like Craiglist or Trulia, or you can try a location-specific premium service that charges potential tenants for access (such as Westside Rentals for the Los Angeles area). Research other places for rent in your area, and set the rent at a competitive market price.
Once you have shown your property, you should give potential tenants a Tenant Application. These applications should be retained in case of a potential discrimination claim in the future.
Ideally, the application will request the following information from all prospective tenants:
- Tenant name
- Employer name and income (if a residential property)
- Business name and ownership information (if a retail or office space)
- Bank references (if a retail or office space)
- Credit and bank information
- Driver’s license number and social security number
- Rental history from at least the last three places the tenant resided (if a residential property)
- Landlord references
- Personal references
The application should also include a statement that you will complete a credit check, informing the prospective tenant that you intend to verify the information in the application. This statement should include a sentence that authorizes the landlord to obtain credit, employment and other information from a credit bureau, creditors, employers, references and/or landlords.
Screen prospective tenants by reviewing applications and looking for these factors:
- Good Credit: Find a credit reporting bureau and order a credit report. When running a credit check, review for late payments, prior bankruptcies and outstanding debts.
- Good References from Previous Landlords: Remember, it is worth the effort to call the references provided and note any complaints of the prospective tenant’s character and respect for rental property (i.e. paying rent on time, noise levels, lease violations, etc.).
- Verifiable Ability to Pay: This can be done through an employment check or by requesting a recent pay stub. Ideally, their monthly income should be at least three times the monthly rent. For retail or commercial properties, following up with bank references can verify the company’s ability to pay.
For a security deposit, at least the value of one month’s rent should be collected. This provides security against damages and/or provides a deposit if the tenant fails to pay the last month’s rent. The security deposit also shows a tenant’s ability to pay the required amounts on a timely basis.
Choosing a tenant for your space also requires that you adhere to the Federal Fair Housing Act. This means avoiding charges of discrimination by not discriminating against tenants on the basis of:
- Race or color
- National origin
- Familial status (families with children)
In addition, your state may have additional Fair Housing Rules to comply with, so be sure to refer to these laws throughout the process.
After thoroughly screening and choosing a tenant, remember that you are providing a service to your tenant. You are not business partners, and you must strictly adhere to standards of payment and of your lease. Use these documents to enforce your lease:
- Lease Rental Agreement for a residential property
- Office Lease Agreement for an office space
- Rent Demand Letter should be sent for overdue rent
Operating a successful rental property relies heavily on your choice of tenant, so take your time and choose carefully based on these factors. Doing so will save you time and money and protect your investment.