So, after you've followed the criteria for purchasing a rental investment property and snapped one up, how do you screen your potential tenants?

I've been a landlord for a few years now and I've seen it all when it comes to tenants.  Good ones, bad ones, all shapes/sizes, and all financial the predicaments you can think of.

When I first started landlording, I didn't have a lot of specific criteria when accepting tenants.  I basically took anyone who was willing to pay me money.  Big mistake.  I was completely naive to the fact that not everyone is responsible with money and can/will pay their rent on time (or ever).

From my mistakes, I have come up with some rules that must be followed before I allow a potential tenant to move in. 

1. Must have a verified job

  • This may seem obvious, but I've had tenants who told me they had jobs but turned out not having any steady work.  No work, means no money to pay rent.  Simple solution, make sure they show you a recent pay stub along with employer contact info so that you can call to verify employment.  Note, I don't have any student housing, so this rule may not be valid in that situation.

2. Must have at least 2 good references (from previous landlords preferably) 

  • Get referrals from landlords prior to their current landlord.  Their current landlord may give them a good reference just to get them out of their place.  To me, landlord referrals are extremely important when screening tenants. 

3. Should have decent credit

  • You can get the tenant to show you their most recent credit report, or you can get it yourself from various sites online.  Tenants with poor payment history usually results in a higher probability of rent payment default.

4. Must have enough cash for a security deposit and first months rent (see local rental guidelines in your area).

  • If the tenant doesn't have the cash for security and first months rent on or before move in date, then I move on.  Some tenants will try to pay you a portion of each because they don't have the cash.  To me, having some cash in the bank shows money management responsibility which means lower chance of rent default. 

5. Prefer not to have a single older lady (or man) as a tenant.

  • Nothing against single older ladies (or men), but from my experience, they are very needy as tenants (am I going to hell?).  I'd prefer low maintenance tenants.
  • However with that said, I would accept them providing that they meet the other criteria.

6. Prefer no pets.

  • I don't mind if the cats are spade/neutered (spray is deadly), but not all pet owners are that responsible.  I love dogs, but tenant dog owners don't seem to clean up after the dog in the yard.  So I just keep a general rule of no pets.

7. Absolutely no smoking inside the premises.

  • This one is self explanatory.  Smoke causes a stink that lingers.  The only way to get rid of the smell is to wash/repaint the walls and/or wash/replace the carpets.  Besides, indoor smoking in Canada is slowly becoming taboo.

8. If one tenant is viewing the home, I must meet all parties before application is accepted.

  • If the potential tenants are a couple, it's usually the good one who views the apartment.  I've had experiences where I accepted a new tenant based only on meeting one of them and it turned out to be a big mistake.  The 2nd tenant turned out to be psycho.  Never again.

Can you tell that I've become a disgruntled landlord? :)   For you landlords out there, do you have any tips for screening tenants that I didn't mention?

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I’ll second the no smoking rule as that has saved me a clean out or two! Also it is funny to see that little old men are just as bad as little old ladies. I had one who “didn’t smoke, doens’t drink and will always pay on time” hang a deer carcass in my carport!!! “Oh it’ll just be there for a few days, nothing to worry about!!”

That’s a good list, FrugalTrader. I’m always surprised when I run across the landlord who still doesn’t do any form of credit/reference check.

Rob and I are a little more lenient on some of your criteria, but one thing we always do, in addition to your list, is obtain a criminal background check (provided by our credit reporting service as a combined report). We had one applicant whose credit checked out fine. One of the reasons was probably that he dealt mostly in cash–largely, it seems from drug sales.

Deer carcass…haha.

FT – you sound like you’ve been through it all.

Do you still think owning rental properties is worth it? Would you do it again if you had a second chance?

Mike

I’m a landlord, lol…but to my Grandmother and Mother so I didn’t go through such a rigorous screening process :) It’s estimated that they will be in a senior’s apartment by January and I have to decide what I’m going to do with the place.

The ease of a longer term rental seems attractive and your advice is great, but I’m not sure if I don’t want to try more of a vacation rental seeing how it’s on the water. If I could actually rent it by the week I think I’d make off with more moola and I’d likely have a different screening process :)

Btw, I’ve been a lurker for a couple months and it’s one of the first blogs I ever subbed to, keep up the great job FT!

ps…my little old ladies haven’t been that bad, they mostly quarrel amongst themselves, lol :)

My ex-landlord use to charge a very cheap rent because he liked to keep the same tenants for a while. However, I can tell you that he uses all rules you mentioned before choosing a tenant.

My favorite rules are the credit check (hey, I’m a banker!), the no pets and the non-smoking. While ignoring the first rule might prevent you from getting paid, ignoring the second and the third might cause severe damage to your property.

FT, what do you think about students? If their parents co-sign, would you prefer them over old ladies ;-)

Hey FT,

The market is fairly good according to the real estate agent, it’s about 20mins from Halifax, NS so very seasonal like PEI, as you mention. I’m sure the old ladies would stay if they were into ice fishing :P

As much as I agree with the rules now, I have to admit I would have been turned away immediately at my last apartment 7yrs ago…DH and I had just moved to Toronto, we smoked (now ex-smokers), hedgehog (rodent pets ok?) and no jobs (or prospects…only savings), luckily the landlord was an old NL’er with a soft spot for Maritimers :D

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I don’t know how the discrimination laws work in Canada, but I’d be careful with #5. In many U.S. states, you’d be violating three different rules (housing discrimination based on family status, based on age, and based on sex). I wouldn’t want to have this blog post up there for a disgruntled rejected single older lady’s lawyer to find.

As far as pets; in an ideal world I’d like to exclude tenants with pets, but since many pet owners are responsible and the rental market isn’t the best, it’s hard to exclude that many prospective tenants. If the other indicators look good (like I’m sure they can pay the rent – the most important indicator of all), I’ll allow most pets.

In response to another commentor’s question about co-signing students – I’m not that big a fan of cosigners, because, sure, that gives you another person to sue if the rent’s not paid, but I don’t want to get to that point. I only take tenants who can definitely pay, and I reject them if it’s close. I’ve had to do evictions for non-payment of rent before, and I never want to have to do it again.

I rented out a relatively new studio apartment in downtown Vancouver for 4 years to 3 different tenants. The first 2 were great, I thought landlording was easy. The last was terrible, and just about turned me off the whole idea… mostly a money problem, but suffice to say I’m still owed more than 2 months rent.

Property values have skyrocketed in Vancouver over the last several years, but rents have not increased dramatically, hence my yield on this property has decreased to the point that I was ready to sell. However I heard about a property management company that rents out fully furnished apartments will all amenities to short term, typically executive customers. This is for companies who want somebody in town for a few weeks or months, and don’t want to pay full hotel prices. I had to do some small renos, furnish the place, provide phone/internet/cable, but so far the service has been fantastic. They handle everything, regular cleaning, etc. Its more of a hands off approach, and after the initial setup investment, my returns are better than before.

Its pretty much the only way to make a decent return as a landlord in a market like mine.

One technique I use when prospective tenants come to view the rental unit, is have them fill out a rental application there & then.

This gives you time to chit-chat with them, get to know them better. Ask questions about themselves (which I mentally note and verify against the background checks I do)

Those are good rules. We followed 1, 2, 3, 4, 6, 7 after we luckily found our gold tenant. The question is whether we increase rent for next year or not :)

Credit Check, Cash, Job References, No pets, no smoking, all a must.
We even offered to help the tenant to move in, ha ha.

I think usually first impression tells a good story. If you don’t get a good vibe from chit-chat, it’s probably worth waiting

Very interesting post. I have to say that in all the years I rented, I never once had any landlord check either employment or credit, and only one who checked references. I’m tempted to say that I must have an honest face, but it’s probably a sign that most landlords aren’t as careful as you.

(Re Charles’ post, a friend of mine was once told by a landlord that he couldn’t fill out an application because they specifically wanted an Asian woman. He laughed that it was the only time he was discriminated against).

It’s tough to discriminate against pet owners – especially during soft rental markets – because many of them are good responsible tenants. But after rehabbing a few post-pet projects I am resolved to never allowing pets unless an absolute last resort.

You would have to be careful about discrimination. However, if you do accept all applications and you don’t ask for a photo then who would know? (Assuming you are doing screening the candidates yourself).

Good list.

The thing with discrimination is that somebody has to prove it. I guess it is pretty though to show that a landlord actually didn’t take a tenant because of his pet or because he his old.

It sounds a bit evil, but still, it must be proven that you are discriminating ;-)

Your post should be read by all who think making a buck in real estate by buying, holding and renting is easy…..It’s it takes time, money, patience and hard work…

I have no desire to be a landlord for all the reasons you outlined in your post….I know some people enjoy working as a landlord, but for me, I would rather own a REIT….

Good post though…and a collection of landlord horror stories would make a good read…

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Something about this post irks me. I’m not sure whether it’s the fact that I’m sick of being discriminated against as a pet owner, or the fact that so many pet owners are irresponsible and messing it up for the rest of us…
My dog gets several real walks a day, she is calm, quiet, and won’t even poop in a yard. My cats are equally hassle free, they poop in a box and sleep in the sun.

Maybe it also has something to do with the fact that I’ve been screwed over by so many landlords… Ill fitting windows, mold growing in my walls, leaks from upstairs neighbours’ plumbing, an apartment that was ready 3 weeks late, Extreme rent increases, ($200). We’re currently trying to get $1700 back for the lighting and heating of a front lobby that a landlord piggybacked onto our counter… My worst offenses seem insignificant in comparison, I once made a scratch on a hard wood floor and I’ve left a few bright couloured walls in my wake, mind you I’ve always sought out approval before painting anyhow.

I’ll be looking for an apartment in July and the thought of it already stressing me out. I’ll be looking for a new job at the same time. I can’t wait for all the discrimination…

FT: We rent solely to students and, in my comparison to both my sister and my father, who rent to non-students, I would have to say that I actually prefer students. We’ve had far less issues getting money out of the kids than the tenants my sister and dad have had.

We get post-dated cheques for the length of the lease, and generally speaking, most of those cheques are from the parents bank accounts. One of the kids parents sends us an email money transfer every month.

Yes, students tend to be a lot messier, bigger partiers, but they also tend to expect less in the way of updates, cleanliness, etc., in general.

FT:
For the 5 and 6 years that we’ve owned our two properties, we’ve never had to do any work (including cleaning) between leases. We’ve had a couple groups stay for two years and usually had students moving in and out at the same time (no vacancy between leases) so they basically took care of the clean up themselves (this was agreed on in the leases).

This year was a bit different (the student rental market is more saturated). We recently underwent a pretty serious reno in one of the houses over the summer and admittedly, the house wasn’t in the greatest shape, however (and I can attest to this as my husband actually lived in the house before them), the house wasn’t in great shape to begin with. The homes around the university are rather old and we have kept the renovations to a minimum. We’ve not had any major damage to either of the houses in the past 6 years (knock on wood!)

Just my 2 cents; We rent exclusively to students, we used to have lots of problems with getting payment for rent even with post dated chcques. Then I heard of a something called “Hold Cheques.” Nothing special, just a concept: We have them right out every cheque for the year with the same starting date. So if rent starts in Sept. 1, then every cheque is dated Sept. 1, then write in the comment section 1 – 12 for the 12 months of the year. The reason: don’t know if it is true, but we tell the tenant that if they bounce the cheque then it is cheque fraud and could be charged. Since then we have never had a bounced cheque and if we explain it that way no one seems to care about making the date the same.

Once again don’t know the legal reasons why, but it seems to work,

Kevin, Ontario

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“The thing with discrimination is that somebody has to prove it. I guess it is pretty though to show that a landlord actually didn’t take a tenant because of his pet or because he his old.

It sounds a bit evil, but still, it must be proven that you are discriminating ;-)”

Funny story, sort of, while hunting for a rental last year in Vancouver the owner of a rental house told me that while my family and I were the best applicants (employment income, credit score, etc) he preferred not to rent to families. He told me that he chose 4 single guys instead. If I didn’t have better things to do with my time (and the fact that I found a much better place in the same neighbourhood for less) I might have entertained pursuing the discrimination.

The funny part of the story is that six months later the landlord contacted me and offered the house to us, turns out there were many complaints from neighbours about noise and cleanliness and they were in the process of evicting the four guys. Needless to say I passed.

Someone asked for landlord horror stories?

While I was in university, I managed 4 fourplexes in town for my parents. (I chose not to live in any of them, because I wanted to be able to hide from tenants if necessary.)

One of the tenants was this young mom who had a little daughter and a knack for destroying her plumbing. One time I went over there to look at her garbage disposal which had stopped working. She blamed it on us, for providing inferior equipment. When I pulled the thing off to replace it, I found a huge rubber stopper and a 3 inch screw kicking around inside it. I assume that these items did not contribute to the operation of the device.

A few weeks later, she called me up again because her toilet wasn’t working. When I got there, I found a 4-inch square had been broken out of the bottom of the tank, and the floor was covered in water. It turns out that she had removed the lid from the tank to investigate a clogged toilet and had dropped the lid into the tank, breaking out the bottom. All 7 gallons of water spilled onto the floor.

We had other tenants who took all the light bulbs and the smoke detectors when they moved out. When I took the cost of the smoke detectors out of the damage deposit, the guy freaked out. His version of reality was different from mine, I guess.

[…] like Million Dollar Journey has written an article on screening tenants.  This is very complimentary to my article – Tenants, […]

What a popular topic! An unusual tip offered by my parents-in-law, who are seasoned landlords, is to have another spouse arcentain the condition of the vehicle (if they have one) while they’re being interviewed inside. By doing so, you’re “previewing” the condition of your suite.

Don’t rent to tenants who don’t keep their car tidy and clean.

BTW, I help my parent screen tenants for their basement suite. Dispite my best effort, a professional tenant-from-hell still managed to outmanoeuvre the screening process that I painstakingly put together. I’ve yet to meet an experienced landlord without a horror story to share. It’s part of the harsh reality of landlording.

It always freaks me out reading articles (and comments) like this, as it seems that no matter what you do its just a matter of time before you have to deal with a few of your own “horror stories” as a landlord.

I allow pets and smoking, I just charge $50 / month more in rent for each (e.g. a smoker with a dog would pay $100 / month more). I tell the potential tenant its to cover “increased wear on the unit” and no one has objected.

Since I have laminate flooring, the $600 / year can be applied to the cleanup and paint job that I’d probably be doing anyways.

Mr. Cheap, did you ever allow tenants with pets or smoking with carpets in the apartment? I would personally not allow them to smoke or to have pets.

It’s all about probability and not about discrimination. Insurance companies use probabilities and not discrimination ;-)

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Another good way to check out prospective tenants…google them AND check your county clerk’s court records site (do a search for county clerk and your county…many are online now). I’ve found all kinds of suspect information…one prospective tenant had multiple foreclosures under her belt, plus a criminal record plus she liked to sue people in small claims court. I use TVS Tenant Verification and do both the credit and criminal background checks. You need to buy yourself some peace of mind before renting something out. It won’t guarantee things won’t go South but it sure will put the odds in your favor! Oh, and please do call their place of work (and verify it’s the right number)…I found a company one guy worked for, was getting ready to go out of business (work in the home construction business was drying up). I ended up not renting to this couple…even though everything else worked out…no job = no money for rent…at least potentially, and I wasn’t willing to take the risk!

Last thing, have an umbrella liability insurance policy…again peace of mind. If that old lady you rented to trips coming down the stairs and sues you…you are going to be sweating bullets, because she can sue you for everything you worked so hard for…and then some. You’d be surprised what jury’s award people. You can get a good $1 mil policy for just over $100-300 a YEAR! Don’t tell me you can’t afford that!

[…] Million Dollar Journey on landlording and screening tenants. […]

What about those of us who had owner their home (5+ years) and now are looking to rent (as a military wife, this happens if we can’t find something affordable to buy when we get posted). How do you handle the fact that we have no references? I do know some places have turned us down for this reason, despite having a steady paycheque.

To comment on comment #14, wow, I’ve got to seriously disagree. Accepting a tenant on purely emotional “good vibes” is going to get you into a disaster of a situation. I would suggest accepting tenants by following an identical process to hiring an employee: i.e., describe in detail, the 3-5 specific top criteria of what the perfect tenant “looks” like ($$ in the bank, credit history, job stability, criminal record, etc.), and create a repeatable process to discover that tenant (paper application, background & credit check, interview, etc.).

“I think usually first impression tells a good story. If you don’t get a good vibe from chit-chat, it’s probably worth waiting”

Read your comments and find them very interesting. No one has mentioned the requirement for a yearly lease. I insist that my tenants sign a yearly lease. In case of default they have to either sublet or cough out the money for the remaining term!!

You all need to be very careful of your comments. In Ontario, the Residential Tenancies Act and the previous Tenant Protection Act both clearly state that “no pet” clauses are void. After a tenant moves in he can bring along his pets with immunity. Your recourse is to pursue them for the damages, if any. Discrimination on some of the grounds many are noting is against the Human Rights Code. You do NOT want to fool with that!

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FrugalTrader- you may enjoy my post about screening for tenants using MySpace. You can check it out here.

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Lately I’ve been giving some thought to whether we want to invest in rental property, and I have to wonder if I could be tough enough to do what’s necessary, or if my spouse is too diplomatic to be firm with bad tenants, especially needy ones. These are good tips to keep in mind just in case.

I hate to agree about the no pets. I remember seeing a “selling houses” episode where the real estate person said pets can decimate property value (but if you are reading this please do not kick your animals out into the snow (-: I feel guilty just saying this). I found new homes for our cats when babies came along because I just didn’t have the time to keep cleaning up after them. Pets are so much work. My husband is a dog person and takes his faithful hound far from the house even in subzero temperatures to do his duty. The dog is not allowed on any of the floors with carpet and I still have to swiffer up fur three times a day. I’m not sure all tenants would be as careful.

I’ve rented in Newfoundland and you seem to ask for more than the average, so I’m thinking your rental must be better than the average. A word of warning to anyone who would like a pet: Try to wait until you can afford your own home. It really cuts down on your options. One of the few places we could find that that would take a dog had a really nice landlord, and then we found out that the place was filled with mold and dry rot. A big problem in basements, which are one of the few places pet owners can find refuge. Pets are more work than most people realize, but if someone seems responsible and is a gold star tenant in every way but has a pet maybe you could insist on air cleaners…? just a thought. With the economic situation in Newfoundland it must be hard to find people who can remained employed for very long as it is.

I had to smile when I thought about getting references from landlords. Our last but one were a husband and wife team under house arrest, and we rarely saw them. They managed other people’s properties, had sold items from houses including light fixtures and lost all the money to a gambling addiction. It might be prudent to check out people who manage property for you as well.

I remember renting from a firm that charged late fees for every day late. Maybe that’s an option to consider for some people.

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