Owning a rental property can be a very financially rewarding experience and a great source of passive income, but it can be nightmare if you don’t select the right tenants to live in your property.
With a little work, some patience and due diligence you can narrow down your pool of potential applicants to only model tenants who will take care of your home like it’s their own and pay their rent on time.
I manage a lot of residential rental properties for clients across the GTA (both freehold and condos) and here’s what I do to find them the right tenants.
I place a lot of emphasis on the 3 main areas I’m about to describe, because they usually paint most of the picture and help me assess the possibility of the potential tenant being a person who would a) always pay on time and b) take care of the property.
Credit Check: Equifax and Transunion are the 2 major credit bureaus in Canada and they allow anybody with a SIN# and credit history to instantly pull up their credit report online for a fee of approximately $25.
As a landlord, make sure you see a complete copy of the potential tenant’s credit report, and make sure it’s the version with the credit score (or FICO or beacon score).
Credit scores range from 300 – 900 and are based on several factors such as frequency of late payments, balance on credit cards/loans, number of credit inquiries, etc.
Someone who has a high credit score (700+) has demonstrated a high degree of financial responsibility in the past and is much more likely to meet financial obligations in a timely manner than someone with a credit score of 500 or less.
Take a look at this chart that appears on Equifax Credit reports. 5% delinquency rates for people with a 700+ score and 78% delinquency rates for people with scores of less than 499.
Employment Letter & Pay Stubs: Always ask for both, because anyone with a computer and a printer can type up an employment letter for a fake (or real) company but pay stubs are much harder to create fake copies off.
A few things you can do to further verify and confirm the applicant’s employment status and income are: a) call the employers HR department b) check the company’s website online c) check to see if the tenant has a LinkedIn profile that matches the information on their rental application and employment letter
Some companies chose not to discuss their employee records with third parties for privacy reasons but that should be fine as long as you can satisfy yourself of that individual’s employment through the other methodsI described above.
If the potential tenant works for a small company, with no website and no online presence, I would definitely ask to see copies of T4’s.
Previous Landlord Reference: The address of the tenants previous residence as well as the contact info and name of the landlord are crucial.
When you call a previous landlord, you must ask these 3 questions; 1. did (previous tenant) always pay their rent on time? 2. Did (previous tenant) take good care of the property and return it to you in the condition you gave it to them? 3. Would you rent to (previous tenant) again?
When I get a positive response to all 3 of those questions I’m usually very comfortable in moving forward with the potential tenants application.
Bottom Line: Once you’ve satisfied yourself of the potential tenants credit application (financial responsibility), employment status (ability to pay) and landlord reference (willingness to take care of the place like it’s their own) you should feel comfortable in moving the process forward.
There are a few more things I do prior to accepting an offer from potential tenants; such as a social media search, verifying that the previous landlord actually owns the rental property described (through the MLS Land Registry service available to Realtors), 3 months bank statements (if no credit report), inquiring about pets and meeting the tenants personally.
A house or a condo is a very valuable asset, make sure you entrust it to someone who will take good care of it. The last thing you want is to be chasing a tenant for late rent, spending thousands in repairs after the tenant moves out, have them break the lease early or find out that the tenant is using your property for criminal purposes.
This article originally appeared on Owninmississauga
