Passive income now is NOT a get rich quick scam!

The Art of Screening Tenants Properly to Protect Your Huge Investment

by MD on December 15, 2011

A rental property is a huge investment. If you decide to go with this source of passive income you’re going to have to put in a massive amount of time into getting the property. You’re also going to have to invest a large chunk of your savings. To put it bluntly, your first rental property can be a make or break type deal as a young investor. All of the time and money that you invest into the rental property is going to turn it into a huge deal. You can find the perfect tenant and be a great landlord. On the flip side, you can flop and regret ever getting into real estate.

Screening tenants is really important. You want to protect this rental property that you spent so much time and money on getting your hands on.

How can you screen tenants properly to save a ton of money? What’s the art of screening tenants?

Check if the candidate has a verified job.

How’s the new tenant going to pay the rent to help you pay off the monthly mortgage of the property? You need to figure this out first. All applicants need a verified job. As much as I support students and entrepreneurs, the reality is that these two groups are going to have lean months where they have very little money coming in. You’re looking for a passive income opportunity and not a charity. You need to find someone with a steady job.

If they claim to be a successful entrepreneur you’re going to have to get some sort of proof of income and savings. Then you need to use your own discretion. Let me share two common scenarios that come to mind. A local business owner that runs a successful business is going to support the community and will likely be able to cover his rent. Some 20-something looking to start the next Google or Facebook, is going to need a reality check before they can even pay their rent in most cases. You want to do your due diligence so that you don’t get screwed over six months into the lease. Tenants have lots of rights these days. You don’t want to be stuck with someone that doesn’t pay their rent because they have no money.

How do you determine if the candidate has a verified and steady job?

  1. Get their last pay stub.
  2. Look at their income taxes.
  3. Use common sense.

Once you determine that the candidate has a verified job and is going to be technically able to cover the rent payments, then you can move onto the next step.

Two references from previous landlords.

This can’t just be the previous landlord because that person might just want them out of the place. You want to get a reference from a previous landlord. You can also ask for personal references and professional references if you want to take things a bit further.

You might not always get this. The tenant might be a new college graduate or some 30 year old dude that finally got kicked out of his place by his retired parents. That’s okay. It’s not the end of the world. Use your common sense at this point. Some guy making good money and on his own for the first time is going to want to pay his rent so that he’s not forced back to his parents place.

Here’s another secret for references: every reference is going to be good.

Think about it. Who would give the number to someone that’s going to talk smack about them? Nobody! Don’t be fooled by the references. This is just done to prove that the tenant has anyone that can vouch for them.

You must meet everyone on the lease.

You need to meet everyone that’s going to be on the lease. I usually don’t recommend leasing to more than just one person. Couples are the obvious exception. If there’s going to be another person on the lease you need to meet them. You also want to do a credit check on both people. It doesn’t matter how busy the other person is.

Oh and if an extra girlfriend or boyfriend show up to the viewing and that person isn’t on the lease, that’s not a good sign. You need to meet everyone on the lease. These people are going to be living in your rental property. The place that you spent thousands of dollars on.

The tenants should have good credit.

Not everyone is going to have excellent credit. You should expect them to have good credit though. You want them to have a history of paying bills on time. On the other hand, the tenant might be a young professional that never got a credit card. You can’t really use that against them.

I won’t dig much deeper on the topic of credit because this is a project all about real estate. You can check out my post on what’s a good credit score?

Is there enough cash for the first and last month?

I was always told to collect the first and last month’s rent as a deposit. If the applicant doesn’t have this, then you might not want to sign the lease with them. Without anything to lose, the tenant can easily walk away from the property.

Absolutely no smoking in the unit.

Smoking is horrible for a rental property. You can’t discriminate against someone for being a smoker. Just make sure they understand that there should be no smoking whatsoever in the unit! They can smoke all they want outside or on the balcony.

No pets preferably.

Pets are an iffy one. You don’t want to deny someone because they have a fish or a cat that they’ve adored for the last five years. You also don’t want a pet to trash your place. Use your own discretion here.

That’s how you properly screen all tenant applicants so that you don’t get screwed over.

Check out the rest of the Landlord’s Starters Kit:

Do You Want to be a Landlord? Let’s Look at Every Cost Involved
Is Buying a Rental Property Passive Income?
How Do You Become a Landlord?
Should You Hire a Property Management Company?
How to Find a Tenant For Your Rental Property

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