Purchasing a long-term rental property is a great way to earn passive income and build up personal equity. Renting out a newly purchased property that you no longer want to live in can also help homeowners avoid tax penalties for selling their house too quickly. And renting out a room in a newly purchased home can help owners recoup some of their closing costs such as realtor fees and mortgage fees.
However, being a landlord is no walk in the park, and finding a good tenant is one of the hardest parts of the job.
Luckily, there are a variety of screening methods that landlords can use to ensure they are not leasing out their space to a dud. While no method is foolproof, factoring in certain criteria can help owners avoid a bad lessee.
This article will explain to landlords some tips to finding a good tenant for your rental property.
Before searching for a tenant, landlords must ensure they understand and adhere to federal and local fair housing laws.
Essentially, owners must give all prospective tenants an equal chance, regardless of race/color, national origin, religion, sex, familial status or disability. The Federal Fair Housing Act lays out these rules, and was designed to prevent discrimination in the housing market.
Additionally, many states have their own fair housing rules, so landlords should understand these as well.
As a landlord, you’ll want to make sure your tenant can pay their rent on time and in full each month. Prospective tenants should have an income at least three times that of the monthly rent. Landlords can ask for pay stubs or contact their employers directly to verify that they do, in fact, have enough income for the property they are renting out.
Some landlords have a minimum credit score requirement in order to allow a tenant to rent out their property. There are a number of different services that landlords can use to check a prospective tenant’s credit history. Although these services often have associated fees, the report provided will typically show if they have a history of paying their bills on time, their debt to income ratio, and any prior evictions.
A background check is another important step in determining if a tenant is right for your property. Criminal information can be found at the courthouse, and you will be able to see both minor and serious offenses. Additionally, if a prospective tenant is a sex offender, their parole officer may have decreed they cannot live near parks or schools.
Landlords can also ask their prospective tenants to hire a background check and credit check company as part of their housing application, which can help the landlord avoid these fees.
Finally, look into your prospective tenant’s previous rental history. You can ask for references of previous landlords to verify certain things. Some questions you should ask include:
Whether it's your first experience as a landlord or you're a seasoned investor experienced in working a 1031 exchange company, finding the answers to these questions can help paint a better picture of what type of potential tenant you have on your hands, and whether you want to rent to them.
Finding a good tenant can be hard, especially during a time of virtual apartment tours, where you may not meet them in-person, but it’s not impossible. Just be sure to do your due diligence before committing to a year-long lease with a stranger.