Once your BRRRR property is renovated, the next step is getting it rented. All your hard work up to now could be ruined if you put a bad tenant into your property. Tenants who don’t pay, or who don’t treat your property with reasonable care, will cut into your profits. While there is no way to predict with 100% certainty whether a tenant will be “good” or “bad”, proper screening of prospective tenants can significantly improve your odds.
Develop your Tenant Screening System
Having clear criteria, written criteria on which to base your renting decisions, and then asking prospective tenants a standard set of questions to ensure they meet these criteria, will make your tenant selection process transparent, predictable, and fact-based. Make sure your criteria and your questions comply with fair housing laws by not including any prohibited or discriminatory questions in your application process. Take time to familiarize yourself with fair housing laws, such as this useful guide published by Zillow.com as you can be held accountable for not running a compliant rental business.
The actual screening questions you decide to use will be determined by your own criteria, but typical questions could include:
1. Where do you currently live?
2. Why are you looking to move?
Getting information about where the applicant currently lives will include getting contact information for their current landlord. You will need this information to do a reference check. Finding out more about why they are looking to move can tell you about their life stage or lifestyle up to this point. If the move to your rental unit indicates a change in lifestyle for the applicant, for example, a younger person who is making the transition from living in a student dorm or with their parents to live in their first new apartment, it may trigger some other aspect of your rental criteria such as requiring a guarantor.
3. Where do you currently work?
4. How much do you earn?
Knowing where the person works and what they earn are important data points. Firstly, to be able to verify that the applicant is indeed employed where they say they are. Secondly, to ensure that the current income of the applicant is sufficient for the rent they will be paying. Your rental requirements should include a clear minimum rent-to-income ratio for renting the unit, and you should be able to verify the stated income by comparing it to paystubs or a tax return provided by the tenant.
5. Who will be on the lease?
6. Who will be living in the rental?
7. Do you have any pets?
It is strongly recommended to name all adult persons whose income is used to meet the rent-to-income ratio in the lease agreement. This ensures that they are all equally liable for non-payment or any problems that can occur during the rental period. Also, knowing how many people (including children) that will be living in the rental unit can help you ensure that your rental unit complies with any occupancy limits in your jurisdiction.
8. Do you have sufficient funds to pay the application fee, security deposit, and first month’s rent before moving in?
9. We will be checking your rental references, contacting your employer, and doing a credit check. Is there any negative information that might come to light that you are aware of?
10. Based on the stated requirements to rent from us, are there any requirements that you think you might not meet? Do you want to give us any additional information?
The exact wording of these questions will be based on your specific criteria. By asking these questions, you allow the prospective tenant to clarify any weird or negative things that might come up during the verification checks. Tenants are human and, even if difficulties they have faced in the past are not deal breakers, you will establish the basis for transparency and healthy communication going forward. Most importantly, these last questions create a good opportunity to go over your rental criteria again and to confirm that it is worthwhile to go ahead with the verification checks before making a final rental decision.