Navigate the Maze of Tenant Selection with These 5 Tips

By Tyler Uzelman

As property managers, the most asked question we get at REIN is How do you screen for tenants? I m glad to hear the question from investors, as it is probably the single most important skill to master if you want to find great tenants. Over the years we have developed a tough screening process, which is why our eviction rate is very low.

Here are the top 5 checks you can complete when analyzing an applicant as a potential tenant.

#5 The Gut Check
This one seems pretty straight forward right? Not so fast… There are professional tenants out there who use their charm to woo an unsuspecting landlord into their fold. Some will talk a great game, but remember everything they tell you so you can use it later to qualify their story. Many new landlords stop after this check because they like the story that is being told. They cave into the human impulse to help one another. Please do not be one of those landlords.

The purpose of this check is simply a fact gathering mission. Ask them about their life, their work, their past landlords, why they are moving, their family, etc. All the information you gather in this mission will be used later with your other checks. Do not decide after this check alone!

#4 The Employment Check
Now is where things get fun. You have shown the property and someone has filled out an application. You have skillfully gathered information on everything in their life through a series of carefully planned questions while showing them the unit. Next step is to call their employer. Now don t just ask them if they work there and hang up. This is your chance to dig to find out if the employment story lines up with the story they told you.

Ask questions of the employer like, how long have they worked there? Do they show up on time? Do they keep their work space clean? If you were a landlord, would you rent to them? How much do they make?

All of these questions allow you to crosscheck the answers with questions you asked the applicants. If there are big deviations between the two, be extremely cautious and find out why. Income exaggeration is common, but at least now you have their true income to assess.

#3 The Credit Check
Now that you have the applicants story, confirmed their employment, it is time to check their credit. It’s important to check their credit history and learn of any known experience with a credit report lawyer in Denver, or a credit lawyer elsewhere. There are several online companies that enable landlords to pull credit as long as they have approval from the applicant. Once you have the tenant s credit in hand, look it over and compare it to the story they told you.

One of the main things you will find on the credit report that should reconcile with the story, is their past residence(s). The report should have their most current residence. Is it the same as what they said? No? Why not? Do they not want you to know who their past landlord is and have given you false information? Also look at their credit history. Do they pay their bills on time? Do they owe any money to other landlords or property management companies?

This report will tell you a lot about the applicant s character and financial responsibility.

# 2 The Past Landlord(s) Check
The next step is to talk to their past landlords. It amazes me, over the years, how few calls we get for past landlord checks. You may think that a landlord will tell you a story just to get rid of a bad tenant. Personally, I think that is an urban legend. Of all the landlord checks we have done over the years we have yet to run into a landlord that we feel has steered us wrong. If they have had bad experiences with them, they let you know, most of the time in more detail than you need.

If you still feel this way, ask the applicant for landlords two residences back and call them. The second landlord has no reason to lead you astray; the tenant is already out of their property. Plus this is where things like landlord insurance come into play as if you design your own policy you can ensure that tenant screening becomes a part of the process no matter who is processing the new tenant and therefore you should be choosing the right person every time.

#1 The Income Check
Just like David Letterman s top ten countdown, I left this check for last, since it is the most important. Even though I have listed it last it should be the first thing you look at. Do the applicants make enough money to afford this rental?

People seem to have unique flaw in that we like to live beyond our means. You do not want this flaw affecting your ability to manage your investments. You have to decide on what an acceptable percentage that the rent makes of their income. 30%, 33%, 36%, it really depends on you. Banks tend to use a 32% ratio for mortgages, which would be a good place to start.

I can tell you that the majority of problems we have seen with tenants come from those who don t make enough money for the place they are living in. When people think about their income and expenses, they tend to use up every last dollar.

When times get tight, that is when problems arise because they never accounted for it in their budget. All of a sudden a transmission goes on their car and they are overextended. Pick a number and stick to it! If the applicant s income is just shy, then you have to pass, for your sake and theirs!

Tyler Uzelman graduated from university in 1995 with a degree in economics, moved to Edmonton and became an investment advisor for eight years. He left the investment advisor profession to pursue real estate investment, becoming a platinum member with REIN over the next 5 years and procuring a decent portfolio of investment property which he self-managed. Currently, he is a Realtor and the Operations Manager with Libertas Property Management Inc., which specializes in single family property management. Contact Tyler at tyler@lpmimgmt.com.