“It’s none of your business what my credit score is!!” How’s that for a start?
Tenants that are soon to live in your property can come in all types : good, bad, really bad. This is why you should do your due diligence before renting out your unit.
If it sounds stressful, don’t worry!
Luckily, we’ve put together a step-by-step guide to screen for great tenants and included some tips along the way.
1. Looks are Deceiving, A Credit Report is Not
After narrowing down your potential tenants to a short list, it is time to select the best one.
A credit report reveals a detailed breakdown of an applicant’s credit history. Credit bureaus are responsible for collecting financial information and a credit report is a great tool to get this info.
An individual’s prior financial history is a good indication of what they will do in the future. Chances are that if someone consistently pays their bills on time, they are most likely to pay their rent on time as well.
Here is what to look out for in an Equifax credit report:
- Personal Information – such as tenant’s name, address, date of birth and employment information. Make sure that this information matches the info on rental application.
- Payment Behavior – how often the applicant is late on their debt payments. Poor payment behaviour will be reflected in the credit score.
- Credit Accounts Information – the types of accounts, when they were created, the limits and amounts for these accounts as well as payment history.
- Debt Type and Amount – The debt amount is not the only important factor, mortgage debt is much safer than credit card debt and as the interest rate will be much lower.
- Type of Inquiry – hard credit bureau inquiries can negatively impact the tenant’s credit score if done too often, soft inquiries do not. A tenant credit check is a soft inquiry.
- Public Records and Collections – from public court records such as bankruptcies, collections files, convictions and sometimes past eviction judgements.
2. No Income, No Rent
Credit check looks good? Awesome!
But how often has your tenant switched jobs and addresses? If the answer is “often”, there is a chance you may have an unexpected vacancy in the near future.
These tenants may have the risk of losing their income and not being able to cover rent.
Another thing to consider is that individuals who work for a salary usually have a safer way to make money rather than those who depend on self-employment or freelance contracts.
So what should you do?
Always check the tenant’s source of income, check its reliability and compare it to the required rent payments. Alongside their income, double check their prior addresses and employment history to make sure they’ll be able to pay rent on time.
Not only this, but find out the amount of debt your prospective tenant has, and the monthly interest they are paying. This is important because if your tenant is paying $1000 or more in debt payments, they may not be able to afford the rent.
This credit report will tell you exactly what their total monthly debt payments are.
Create a rent-to-income ratio. Take your prospective tenant’s monthly rent and divide it by their monthly household income. If the rent is over 30% of their income, recognize they are more likely to be delinquent.
An ideal candidate should have additional income to cover the rent payments in the case of unexpected expenses.
If your tenant has been consistently changing addresses and jobs, be wary of them doing the same with you.
3. Run a Background Check
A background check is used to investigate a candidate’s history. It generally includes employment, education, criminal records, credit history, motor vehicle and license record checks.
So how do I run a background check?
It’s easy! All you need is:
- Tenant’s Full Name
- Driber’s license or Social Security Number (both optional)
- Date of Birth
- Current Address
4. Contact the Previous Landlord
- Has the tenant paid you all the rent?
- Does the tenant pay on time?
- Has the tenant caused damage to your property?
- Were they respectful towards the neighbors?
- Would you rent out your property to this tenant again?
It is always better to try and contact more than one landlord in case they are just trying to get rid of their past tenant.
5. Join a Facebook Group
Have a question stuck on your mind but don’t know who to ask? Join a Facebook group of landlords from your province.
Members of these groups share stories about their experiences and will provide advice that can help you with your current situation.
They will also often share information amongst the group about delinquent tenants and it might save you hours of figuring that out on your own.
The Facebook admins assist with all questions relating to the Residential Tenancies Act and will help answer your questions!
Landlord Facebook Groups Across Canada
6. Interview the tenant
Have you taken all the steps to screen for a great tenant? Well, it still might not be enough. You can spend weeks screening a tenant but sometimes your instincts are the best judgement.
Think of the screening as weeding through the candidates that you certainly do not want living in your property.
When hiring a realtor, their objective is usually to find a tenant in the shortest amount of time. So you might end up with an average tenant rather than a great tenant, which may result in problems over time.
After thoroughly screening your prospective tenant and confirming they’re good on paper, talking to them over a cup of coffee might be the best screening of all.
“Talk to them? About what?”
Well, first things first, ask about what you want to find out. You should ask about their past renting experience, and see if their story aligns to their references and feedback from past landlords.
An easy way to start up that conversation is by saying “I know how difficult landlords can be when it comes to their property. How was your past relationship with the landlord?”
You might just find out that they’re in court right now for an eviction.
As a landlord, you cannot rely on the paperwork alone to carry out a tenant background search. You have to be creative and willing to engage with tenants on a personal level. Conversations can help you better understand the way your tenants relate to others and how they handle conflict, all of which are essential to achieve the best tenant screening.
Following these 6 steps will minimize the risk involved in renting your unit. Investing in proper tenant screening pays off down the road. With SingleKey, you can get a comprehensive tenant screening report in minutes, including a background check, credit report, employment history, past addresses and evictions, and criminal record.