My Ideal Tenant
When owning rental property, one of the most frequently asked questions is, “How do I know who would be an ideal tenant?” Any financial planner will tell you that owning property puts you on the path to financial freedom.
Not only does investment property offer diversity to your portfolio, but it creates passive income that contributes to your retirement plan. Are there any certain risks that go along with being a landlord? Yes, there are. However, being a smart landlord can minimize the risk.
Before making any commitments to a seasonal, short or long-term renter, you need to establish several guidelines stating them in the rental agreement, among other specifications. However, before signing it, asking all the right questions will help you select the best possible tenant.
When qualifying a potential renter, the following suggestions could help with that process.
Having a rental application that asks direct questions can be a great start in finding the right renter. Questions that include but not limited to:
- Name, phone number and current address.
- Current Employment and phone number.
- The nearest relative not living with you (some applications ask for their address and/or phone number).
- References which include their current landlord.
It is always a good idea to consult with your attorney to see if you can ask more specific questions related to current income, banking information, and why they are leaving their current residence. Questions like these might bring up various situations that could be flagged as potential problems.
Checking references is like checking your car’s tire pressure or motor oil before going on a trip. You have to do this to avoid any problems when traveling on the highway. The same goes when you will be giving someone complete access to your property. Asking the right questions when doing a reference check could tell a lot about your potential renter. Here are a few questions that you should ask when checking references.
- Did they keep the place in good shape, clean and in order?
- Did they pay their rent promptly or as agreed in the lease?
- Were they good neighbours?
- Was communicating with the tenant easy?
Probably the most important question a future landlord needs to ask a current landlord is, “Would you rent to them again? When questioning a current or past landlord or management company regarding a possible tenant, having an even keel tone is highly advised. If the person you are talking to feels comfortable or at ease, they might provide additional information that could prove very beneficial.
A Deeper Evaluation
If you feel that the property is above average, like beachfront or in the heart of downtown, you can get more in-depth than the basic rental application. This could also include charging a ‘processing fee’. The value of the property could justify a credit or background check. Nowadays, renting a property is a lot more involved than in the past. Unfortunately, times are changing, and so are the rules.
Performing tenant background checks are not uncommon. There are a variety of agencies that provide this type of service. Your fees will depend on how much information is needed. Here are a few categories to choose from:
- Criminal records, which include sex offenders and a Patriot Act Search.
- Credit checks, foreclosures, evictions and other negative financial situations.
- Bank accounts, assets information, and the ability to pay.
- Lawsuits, medical conditions or any additional undisclosed information.
- All the above.
In most cases, the lessor – management – property owner charges a fee to perform the background check. If someone really likes your condo or house and has nothing to hide, they will pay the nominal amount to secure the residence.
Once you have narrowed down a potential renter(s), schedule a meet and greet. This would also be an ideal time to find out what their expectations are. Not only coming from the lessor but what the lessee expects as well.
One of the most important elements in a business relationship or transaction is the ability to communicate. It’s also a good idea that both parties feel they are part of a win-win situation. Nobody likes to be on the losing end.
Once you meet someone face-to-face, you get a better feel for that person.
It would be best if you considered other factors when looking for that ideal tenant. One of those factors is; do the accommodations match the resident’s needs. Consider the following.
- Are there enough bedrooms and bathrooms?
- Does the kitchen accommodate the family’s cooking style?
- Is there enough living space for the number of people in the family?
- Do they need outdoor space?
Another thing to think about is if the tenant entertains or has out-of-town visitors frequently and if so, will they have enough room to accommodate them? Having an adequate amount of space for any occasion will reduce wear and tear on the home.
It would be a good idea to ask, and should also be on the “Rental Application”, “Are there any pets involved”. This doesn’t mean you are against allowing pets, but again, as the owner/landlord, you know if the home is pet friendly. In some cases, the landlord charges an additional deposit or fee (usually determined on the type of pet, size or breed).
Last but not least, always be aware of the hard to see abnormalities in someone’s demeanour or application. With that said, there is no substitute for not listening to your instincts. It might take a few times before you learn what to look for. Just like anything else, once you get the process dialed in, it gets easier each time. Even though all this seems a bit tedious, keep in mind that owning an investment property is a positive move towards your financial goals. If everything were easy, no one would need to rent.