Finding the right tenants can be tricky at times. A prospective tenant may seem great during the house showing, however, there is still much that you don’t know about them. A person who is interested to rent your property would naturally try to make a good first impression. This is when tenant screening comes into practice.
As a general rule, screening a tenant’s profile is essential. Having a proper tenant screening system can prevent unnecessary damages to the business. There are no guarantees when it comes to tenant quality however this system will help you decide the kind of tenants you are bringing into your property.
As I have frequently mentioned, rental properties are essentially a business. You, the landlord are basically selling service of providing shelter while the tenant is buying service of needing shelter. In regards to this, both of you have the right to know about one another before a business commences. Hence, as much as the tenant can ask about the landlord and the property; the landlord should also ask, assess, and filter the potential tenants before making a decision.
So, here is what you need to know about tenant screening in order to find the best tenant for your rental property.
What should landlords look out for when screening tenants?
Generally, there are six guidelines in which I would advise when it comes to screening for prospective tenants.
1. Set your standards
Just because your property is rented out to others, doesn’t mean that you don’t have a say in it. As the landowner, the final decision is always yours to make. So, having a standard for the qualifications of potential tenants will streamline the overall selection process and eliminate those who don’t fulfil your criteria. It is crucial to always stick to the standards since ignoring them can cost you both time and money in the long run.
The list of standards should take into consideration the tenant’s income, credit history, evictions, criminal history, housekeeping skills, pet or smoking policies, and so on. Besides, you should also think of who you would want to rent the property to, whether to singles, a working couple, a small family, or students, etc.
On a side note, I personally prefer a working couple or a small family. It gives me more assurance that I’ll receive my rental payment on time and that the house will be well managed, maintained, and won’t be overcrowded. Nonetheless, it also depends on the location of your property. For instance, if it is more strategic to rent to students then, by all means, feel free to do so.
2. Prescreen potential tenants
Stating your tenant expectations up front in the rental listing is a great way to help weed out those who may not meet your qualifications. This is because upon seeing the requirements in the listing, the readers may decide not to tour the property or apply if they feel that they don’t meet the criteria.
You should also inform potential tenants about your screening process as some of them may back out even before you thoroughly screen them. If you do not consider tenants with felony backgrounds, then mention that you would carry out criminal background checks as part of the process. If you have strict no pets or no smoking policy, then ask them whether they have pets or whether they smoke.
Another method to prescreen potential tenants is through their social media accounts, which may provide insightful information regarding the person’s character. For example, if they have demonstrated any uncouth behaviour on their Facebook, Instagram, Twitter, or any other social media platforms, then that should throw up a red flag. LinkedIn profile, on the other hand, can help provide some confirmation about their employment history.
A quick tip: Take a peek at how well your prospective tenants maintain their cars as it tells a lot about their cleanliness.
3. Run financial checks
There are two kinds of financial checks which you should run on a potential tenant – income check and credit check.
a) Employment details and outlook (a.k.a income check)
An income check indicates whether the potential tenant is able to afford rent payments. As a general rule of thumb, a tenant should earn three times the monthly rent from their jobs.
Hence, their employment outlook plays a role in such situations. Yes, I know. During such times, many are affected by the Covid-19 pandemic and are having a rough time. Nevertheless, if the tenant is to have long periods of unemployment, then it can be difficult for you, as the landowner to collect rent at those times.
Contrarily, tenants who are employed and have a stable income tend to be more willing in paying their rents on time. Some landlords may even receive post-dated cheques as an assurance on the rent payment.
b) Credit check
A credit check is a review of an individual’s history. It can tell you whether the prospective tenant pays their bills on time. It also allows you to assess the person’s debt and analyse how that relates to their income.
Furthermore, credit reports will reveal whether the potential tenant has any prior evictions, bankruptcies, or civil judgments. However, you may need to hire screening services such as CTOS in order to run a credit check.
Depending on the information provided from the credit report, you can either move forward with the tenant or reject them. Asking the tenant to explain the discrepancies found (if any) from the credit check can be helpful. But by the end of the day, it is your choice to determine whether they are being truthful and if you are willing to give them a chance.
4. Run background checks
A background check is an invaluable tool for landlords since it can predict a tenant’s behaviour. You can use a background check to unearth past evictions, criminal records, and any information that is readily available in the public record. This enables you to determine whether the potential tenant has the possibility of putting you, your property, and/or the neighbourhood at risk. Therefore, this step is vital not just for tenant retention but also for ensuring your safety.
Nevertheless, I highly advise you to get a tenant that is averse to crime, drugs, and other illegal activities. The last thing you want as a landlord is to be at the local police station for a crime on your property.
5. Run reference checks
Reference checks may be a bit of a hassle but they can offer a cache of information regarding the prospective tenant and their conduct as a person. It is usually carried out by calling up their employer, the previous landlord(s), and/or personal references.
For instance, you may be curious to know whether they are good at housekeeping or whether they are a responsible person, and so on. Hence, by conducting reference checks, you can learn more about the potential tenant based on their employer and/or the previous landlord(s) overall experience.
Some may argue that this is not necessary since social media are able to give you an insight into the tenant’s character, hobbies, etc., but remember, it is only up to a certain extend. Furthermore, everything online can’t be fully trusted.
6. Don’t rush into securing a tenant
Given that the tenant will be living in your property for a certain period, it is wise to take your time and think about it. You want to make sure you are getting a tenant that you can trust and is comfortable with.
As an example, you might be facing a dilemma in choosing between two tenants. The first tenant can move in immediately but he barely meets your minimum qualifications. Contrarily, the second tenant needs to wait two months before moving in. However, he meets all your qualifications and even has an impressive rental history.
In this case, I would suggest choosing the second tenant. No doubt, you would lose a bit of cash due to your property not being rented out immediately. Nonetheless, in return, you gain a high-quality tenant which makes your job as a landlord less stressful. Moreover, when assessing prospective tenants, it is also useful to identify the deal breakers in your decision-making so that you aren’t easily swayed by charm.
How can landlords protect themselves against bad tenants?
1. Screen prospective tenants
A thorough screening process ensures that the potential tenants are reliable and suitable for the tenancy. As rent issues usually end up in evictions which can cost you a significant amount of money and time. Thus, the entire process can be avoided if you implement a strict tenant screening process.
2. Document your processes
Proper documentation is necessary and can help avoid claims. For instance, every time you have accepted a new tenant, record the reason for selecting one over the other in order to protect yourself against possible lawsuits. Do also jot down the responses of the employers and previous landlord(s) when conducting reference checks.
3. Record your property’s condition
Have a visual walkthrough inspection of the rental property with your tenant at the beginning and at the end of their lease to record any existing damages. It is crucial for you, as landlords (especially partial or fully furnished properties) to have a record of the appliances and furniture provided during the rental period. Other than protecting yourself should new damages occur, this step will make it easier if any legal authorities are involved.
4. Apply for the right insurance
Many of us are not aware of the importance of getting insurance to protect our investment. Landlord insurance is a type of insurance policy that covers a property owner from financial losses that are linked with rental properties. It is tax-deductible and covers property investors for a variety of events as listed below.
- Rental loss. Such as when your property is damaged by natural disasters like a storm or flood, rendering your property uninhabitable for some time.
- Rent default and theft. This includes rent defaults, outstanding utility bills, damaged assets, and even stolen items. For instance, the tenant decided to take some of the furniture you own from your partial or fully furnished rental property together with them when they move out.
- Malicious damage. Wear and tear of rental properties are common and expected. As such, damages beyond normal can occur either through malicious acts or vandalism.
- Legal costs. The landlord insurance provides additional cover for legal expenses incurred in remedying an issue with the tenant.
- Home fixes. With landlord insurance, it can eliminate the “who is responsible for the damages” debate for cases such as burst pipes, leaking roofs, break-ins, etc.
- Mortgage loan installment protection. It covers landlords in the event the rental property is temporarily uninhabitable or in the case of accidental death or permanant disablement.
- Public liability. It ensures you, the landlords against an injury or death that occurs on your rental property.
Nevertheless, landlord insurance is just one of the options. You can always shop or ask around for a good policy that you deem is suitable for you. Be sure to double-check the fine print to ensure the policies covers you for everything before signing your signature.
5. Learn and know of related rules and regulations
Every country has its own rules and regulations when it comes to rental properties, so be sure that you are familiar with yours. In Malaysia, the related laws would usually be inscribed in the National Land Code, Contract Act as well as the tenant agreement.
6. Sign a lease guarantee
Besides the tenancy agreement, a landlord can also request the tenant to sign a lease guarantee, though it is yet common in Malaysia. A lease guarantee is an agreement between the landlord, tenant, and the tenant’s guarantor. In the case of rent payment default or property damage, the guarantor will serve as a financial intermediary and will be held liable for the tenant’s default.
Final Words
Choosing the right tenants is key to successful rental property business. In addition to ensuring that you find good tenants, the screening process can also help guarantee your income.
Nonetheless, a business that is successful works in both ways. Just as you are assessing your tenants, the tenants can also assess you and your responsibleness as the landlord. In order for tenant retention to happen, you would need to carry out your duty as the landlord to maintain the property and respond to the complaints made by your tenants.
Landlords that manage to build a good rapport with their high-quality tenants tend to have a better chance of tenant retention. Even if the tenant decided to end their lease, they will also be more willing to introduce future potential tenants to the landlord.
Until the next article, take care.
