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How do you screen your tenants? Here’s a step-by-step guide on how to do it.
One of the biggest challenges for property investors is finding good quality tenants.
Prevention, after all, is better than cure. Tenant horror stories are everywhere, but most of these scenarios could often have been avoided if the landlord had thoroughly screened rental applicants upfront.
To avoid being locked into an unpleasant rental agreement with a problematic tenant, it pays to perform a good and thorough screening process. This will save you from the stress, headache, and not to mention expenses that a bad tenant can cause.
Some landlords think that they can trust their gut instinct when it comes to choosing a tenant. However, a good or bad first impression cannot accurately predict how a tenant will behave.
So, how can you thoroughly screen prospective tenants?
How to effectively screen potential tenants
1. Know what a ‘good’ tenant looks like
Before you begin screening tenants, it’s important to have an idea of what the perfect applicant looks like for you.
There are at least five areas of a person’s history and background that a landlord should screen: income, employment, criminal background, credit, and previous eviction and residence history. Set your requirements for these areas and from there, you can “visualise” your ideal tenant.
For example, a good tenant can be a tidy person with a steady income, who’s respectful of your property and their surroundings, and intends to stay in the property for an extended period of time.
For other people, the requirements may be more specific. For example, if your property is in a quiet family suburb, you may want to reconsider renting it out to young rowdy college students. If you have a property manager, be sure to communicate your vision of the perfect tenant with them.
2. Pre-screen potential tenants
Even before a tenant fills out an application form, you can start the screening process by asking a few simple questions.
When tenants are viewing your property, you or your property manager should take the opportunity to know them as much as possible.
If you don’t allow pets in your rental property, ask them if they have pets. If you are not allowing people with a criminal history to rent your property, mention that you intend to run a criminal background check as part of the application process.
It’s worth informing potential tenants about your screening process. Their responses can either turn up red flags or make you want to have the tenants as your top candidates. Either way, it’s a good method to weed out the wrong type of tenants to avoid wasting your time.
With just a quick informal chat, you may be able to find out what kind of person they are, how their job’s going, if they move often, and if they’ve ever had trouble in previous rentals.
Along with asking a few strategic questions before they apply, some online research would also be a good idea. If their profiles are public, you can look at a potential applicant’s social media footprint. It can help you get a good picture as to what their private life is like, and therefore how they would treat a home.
3. Proof of income and ID
If you can’t be certain that an applicant is who they say they are, the screening process will be moot. For that reason, don’t start checking an application without proof of income and ID.
Essentially, the application is a series of questions that provides you with important information about who will be moving into your property. The answers will only be valuable if you do your due diligence and verify them. Because of the competitive rental market conditions in Australia, some tenants may not be completely honest in their application.
So during the screening process, make sure that you verify everything on the application when screening applicants. Be firm on requiring 100 points of ID and proof of income. Ask for backing documents, such as their most recent payslips and/or a bank statement highlighting their income.
Another way to verify the information on an applicant’s form is through an interview. Take the time to interview your short-listed applicants. Like any interview, choose the right questions to keep to the point and get the necessary information.
One question to ask is why they are moving. If you have a good tenant in your hands, they should have no trouble answering this question. It could reveal that they have been evicted from their previous rental property.
Another aspect to cover during the interview is their employment. Ask about their current job and where they get their income from.
An interview opens up a chance for prospective tenants to air out any grievances while giving them the ability to respond to any questions that a landlord may have.
For example, if the tenant cannot provide their three latest paychecks, this may be perceived as a red flag. But in the interview, the tenant can convey that they have taken a long holiday or they have taken a leave of absence to take care of a sick relative, hence the lack of a paycheck.
If the landlord liked this tenant but the lack of employment was considered an issue, giving the tenant a chance to explain could put them back in the running for the property.
5. Reference check
One of the most important steps of the screening process is to check the references that the applicant has provided. Most typical tenant applications require at least three references – from personal referees, past employers, and previous landlords.
It will give you more information about their previous experience as a renter, the stability of their income, and how they come across to people they have interacted with.
The first most important reference check you should make should be to the landlord or property manager of their last rentals, ideally covering the past two years.
Some of the sample questions to ask include:
Contacting a reference from their last rental can provide valuable and accurate information, as well as an insight into whether or not the applicant was a good tenant. It can help you verify dates of tenancy, monthly rent paid, and reliability of payments. It will also help you identify any issues the landlord experienced with the tenants, which may include any property damage.
Next, contact the applicant’s listed employer. Ask about the applicant’s job prospects (e.g. Is the applicant likely to still be employed six months down the track?). The employer can also provide an overview of the applicant’s character, how reliable and responsible they are. This is a good indicator of how dependably they’ll pay their rent.
6. Tenant background checks
If the applicant has ticked all the boxes, landlords and property managers often use tenant screening services to conduct background checks as a final step.
Tenant screening services contain historical tenancy information and are a good way to determine if a tenant is a good prospect to rent an apartment or house.
Some of the screening services used to commonly access “inquiries” databases and generate reports include:
Screening services run background checks to determine a tenant’s previous rental history, verify their income and employment, and obtain a credit report to determine the ability of the tenant to meet rental obligations. Generally, the information obtained when conducting a tenancy search and obtaining a report includes:
Just note that this information is usually not free; this is why it must only be done with your top rental applications.
Finding out this information before you offer tenancy to the applicant can save a lot of heartache down the line if, in the worst possible scenario, tenants go missing without paying their rent or your property gets damaged.
It is completely up to the landlord whether or not they will green light someone with a criminal conviction or bankruptcy in their past – however, these are key points about a person that is good to know before putting your property in their hands.
If the database check turns up anything that doesn’t look too favourable, you haven’t yet offered the applicants tenancy, giving you time to have a conversation before terms are agreed upon, if at all.
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A rental property refers to homes or apartments used as dwellings for tenants.