So it's time to find a tenant for your property and you're wondering how to go about finding the right tenant. Or perhaps, like many others, you're hoping that the right one just falls into place. Letting chance decide whether you find a reliable tenant is a risky proposition. This article will explain how to screen prospective tenants to ensure consistent cash flow and avoid losing money on lost rent and eviction fees.
Find good prospects
Begin by advertising to create a pool of applicants from which you can choose the best. Advertising doesn't have to be extravagant; start with Craigslist (the price is right) or Roommates.com if you're just renting out part of a property. Remember that some listing sites are often skewed toward a tech-savvy, younger demographic. You may need to list the property in a classified ad in a publication whih is read by your target clientele.
The rental application
The phone's ringing! Now what? Find a rental application form online. You will need to get all of the tenants' full names, social security numbers, dates of birth and current addresses to pull credit reports. Also, record their employment information, including position, supervisor (and his/her phone number) and income. Tell interested applicants when you will hold an open house and make sure that the time is convenient for conventionally employed applicants. Finally, tell them how much the application fee is. This is critical: always charge an application fee ($20 is typical) for two reasons:
- It weeds out many, but not all bad apples.
- It will cover your expense for when you pull the applicants' credit reports.
But wait! Fifteen people say they were coming to the open house and only four showed up! What happened? Well, either I could rant about the shortcomings of human nature, or I could simply tell you to expect a low turnout rate. It is what it is; expect between a quarter and half of applicants who say they'd be there to actually come to your open house. The lower-end the property is, the lower the fraction will be. When you meet the applicants in person, ask them some questions about their jobs, their lives, their families and their lifestyles in general. You'll learn a lot, and what you don't pick up consciously will still form a gut feeling, which is what you want to follow more than all of the other screening techniques combined.
Perform due diligence
After you've shown the house, collected the application fees, and developed a sense about the applicants, start with the most promising applications and pull their credit reports (go directly to the bureaus, like Experian). Call their supervisors, verify their employment history, income and likelihood of continued employment. Call their current landlord and ask about their payment history. Finally, if everything looks good, inspect their current residence, and see firsthand how they live.
Get a solid lease agreement
You're almost done! Once you and the tenant have agreed on a price, a security deposit, a term and have settled the details, make sure that you have a good lease agreement that complies with local laws and any legally-required disclosures in your state. This can't be overstated: You really need a good lease, as it will be the first piece of evidence if there's ever a disagreement between you and the tenant later on.
Congratulations! You're done, and with any luck, you won't hear from the tenants again until it's time to renew their lease. Good luck, and remember that you are not alone; there are thousands of resources out there for landlords and real estate investors.