You’ve done all the work that’s needed on the path to investing in rental properties. You’ve found your properties, secured your financing, done your rehab work. Now all that’s left is finding the right tenant.
Finding the right tenant can be tough, but it’s a crucial part of determining whether your investment succeeds or fails. Here are six things you can do to help find the right tenant.
1. Know the law
Under the federal Fair Housing Act, landlords must treat all potential tenants as equal. The law prevents you from discriminating against renters based on their race, color, national origin, gender, familial status or disability. Many states also have their own fair housing guidelines, so read up on both federal and local laws just to be safe.
2. Find out their credit score
While landlords need to follow the law, they also need to look out for their own economic well-being by renting to tenants who are fiscally responsible.
If your tenants pay their other bills, it’s more likely they’ll make their rent payments on time as well (and treat your property with respect).
One of the first steps in finding the right tenant is verifying their income. In the best case scenario, you’ll want a tenant whose monthly income is at least triple their rent. Ask to see pay stubs, and check with their employer to confirm they have a job and to find out how long they’ve been there and what they make each month.
A credit check can tell you whether they have a good track record of paying bills on schedule and how much debt they have compared to monthly income.
3. Check out their rental history
If you can, talk to your prospective tenant’s past landlords. We advise talking to more than one if possible. If they’re a problem tenant, their current landlord might be looking for a chance to get rid of them. A past landlord is more likely to be honest.
Find out if they were clean, paid their rent on time, if they moved voluntarily – as opposed to being evicted – and if they got along with the neighbors.
4. Know their criminal history
If you have your renter’s name, birth date and ID – so you can verify they are who they say they are – you can conduct a criminal history.
This will let you determine whether they’ve ever been convicted on the federal, state or local level, if they’ve spent time in prison, and if they are a registered sex offender.
But be careful: some states don’t allow landlords to discriminate against certain types of criminal convictions. You’ll probably also have an easier time turning away someone who’d committed a violent crime than someone with, say, a lot of parking violations.
And keep in mind that this kind of background check can take time, so you may want to hire a tenant screening service. (They can also conduct a credit check.)
5. Ask for renter’s insurance
Tell potential tenants you’ll need proof of renter’s insurance before they move in. This insurance will cover the cost of their belongings, as well as any damage they cause to the building.
6. Go with your gut
Screening is important, but sometimes finding the right tenant – or weeding out the wrong one –comes down to how you feel about that person. Trust your screening processes but trust your instincts as well.
Need help finding the right tenant?
If you need further help in finding the right tenant, turn to DIG. The Diversified Real Estate Investor Group has spent more than 40 years working with landlords like you to assist them with what can often be a complicated job.
We usually meet on the last Thursday of each month and will offer courses on land-lording through our DIG University educational service. We hope to see you soon.