So you've decided to become a landlord and purchased your first rental property. You're excited to have somebody else start paying your mortgage and build equity for you. Congratulations, you're successfully on your way to becoming independently wealthy through real estate.
The first thing you need to do once you've purchased your property is find a tenant to occupy it. While it seems simple on its face, this is one of the most crucial decisions you will make as a landlord and it can have a huge impact on the success of your investment property. By following these simple rules for screening tenants you will be off to a great start with trustworthy and respectable tenants occupying your property.
Where to Find Tenants
When you are first beginning your search for the perfect tenants, your goal is to get a large pool of potential applicants so you can narrow them down to just the right people to occupy your property. This involves posting ads for your rental property in commonly read publications either online or in print. Some great places to advertise online include: Craigslist, online versions of local classifieds, roomates.com, etc.
Print advertising can also be a great way to advertise your property. Some forms of print advertising include: classified sections of local newspapers, flyers that can be posted in public areas or neighborhoods, universities or corporate housing offices, or specialized rental property magazines.
Last but not least, make sure you place a rental sign outside the property. Be sure that the sign is placed in an area that is easily seen from the road and includes useful information such as the phone number to call, monthly rental price, and some features of the property such as # of bedrooms, bathrooms, etc. These details on the sign will weed out tenants who wouldn't be a good match for your property and will save you time in the long run.
The Rental Application
Now that you've got your phone to start ringing with potential tenants, you need to be having them fill out a rental application. Generic rental applications can be found all over the internet and you can pick and choose aspects of each that you like when creating your own. Ask for all the basic contact information as well as important information about past and present employment history, current income level, personal and professional references, and rental history. Consider charging an application fee to cover any costs incurred by background or credit checks. Charging an application fee will also weed out any applicants that are too cheap to pay it - and if they're too cheap to pay the fee they're most likely too cheap to pay their rent.
Credit Checks & Background Investigations
The next step is to verify the information that the applicant has given you. Make sure you call the references they have listed as well as their employer. If anything seems strange or out of place about their references or employer, throw the application away. Don't ask questions, don't hesitate...throw it away. You don't have time to waste figuring out whether people are lying or not, it's just not worth your time.
Once you have narrowed down the list to a small group of qualified applicants, it's time to do the real digging. Request a credit check from the major credit bureaus (Experian, Equifax, and Transunion) and see what their credit history looks like. Look for unpaid utilities, judgments in small claims court against them for not paying bills, previous eviction notices, etc. This will give you a good idea of their financial standing and whether they would be able to pay your rent or not. In addition to the credit report, it often pays to have a background check performed as well. Background checks can speak to the character of the applicant and you can make a personal decision whether or not that's the type of person you'd like to be renting to.
Interview the Applicant
If everything check's out on paper, it's time to meet the person face to face. Schedule a time for the applicant to meet with you at your office or the rental property itself. This is your time to get a feel for the type of person you will be dealing with should you decide to rent to them. A lot can come out in person that could be overlooked through contact over the phone or by email. If you get a good vibe from the person and it seems like they may be someone you'd like to rent to, think it over for a night and then ask them to come in to sign a lease.
Congratulations, you have gone through a thorough screening process and found a great tenant to live in your rental property. With the initial risk minimized, the only thing to do is keep them satisfied and continue to collect your rent on a monthly basis. The process only gets easier and more streamlined in the future as you continue to rent out property.
