Renting Out Your Home Part Five: Tenant Applications
Finding the right tenant is the most important step in renting out your home. Many landlords are lured by someone who presents themselves well and have a wad of cash ready to move in to your “beautiful home” and treat like their own, many times boasting about what great rental history, references, and jobs they have. So what is wrong with taking their cash and letting them move right in so you can start receiving the benefits of all your hard work from making the home “rent ready”, advertising, and getting these people to the door? Plenty, and in the steps below I will outline a few reasons why following up with due diligence is absolutely necessary at this critical stage of investment property ownership.
Renting a home without having a prospective resident go through this basic step can not only be financially but civically irresponsible. How do you determine if this person is who they say they are? Have the means and responsibility to pay the rent timely? Are they a threat to the health, safety and welfare of the neighborhood? These credit and background checks are a good first step in that due diligence.
Before accepting applications, you should research credit and background check companies to find a fit for your needs. Credit and background checks often cost around $25 per applicant.
Once you have a company in place to run credit and criminal background checks, see whether the company has an application you can utilize; or search for free landlord forms to find one. As people come to see your property and show an interest in renting from you, make sure you have a rental application on hand. It is also a good idea to do all of the following:
- Verify their identity by referencing their state ID with the information on the application
- Verify their income with recent paycheck stubs or bank statements, etc.
- Identify all residents who will be living in the home
- Identify any pets (if applicable) with height, color and breed
Once you have the application filled out and signed, allowing you to process or send to the credit and criminal reporting agency, do just that: send it off and wait for the response, which usually takes 24-72 hours. While the application is being processed, follow up on the employment (if applicable) reference. Contact the prospective renter’s employer and ask whether the tenant is employed. Be mindful of how the “employer” answers the phone to ensure that it actually is a business, not just one of the tenant’s friends. For example, most businesses do not answer with a simple “Hello?”
Next, contact past landlord and personal references. Keep in mind if a prospective renter is being evicted, the current landlord most likely cannot or will not give negative information. That is why it is important to request 2-3 past landlord references. Ask each landlord reference the following:
- Did the renter fulfilled the terms of the lease?
- How many times were they late on the rent?
- Were they evicted or asked to leave?
- Would the landlord rent to them again?
Keep in mind family members or friends should not be considered rental references. Checking references should take about 30 minutes per applicant.
After looking at the credit and criminal background and finding the prospective resident to be a good risk, you must also take the rest of your findings to build a picture of the people who wish to move into your home. If all things come together and the prospective renter looks like someone you wish to take care of your property for the next year or two, let them know they are approved and set a move in date.
However, if the fit is not right and for whatever reason you decide not to have the person rent your home, then you have to let the resident know you are not going to be renting to them at this time. It is best to call and follow up with a written correspondence (email is acceptable) stating the reason for not accepting the application such as: “We will not be extending an invitation to lease due to your credit findings.” If the reason for not renting is credit, the credit reporting agency will give you the name and address of the credit bureau for you to give to the prospective tenant to obtain a copy of their report for no charge. Below are some other common reasons for rejecting a tenant’s application:
- Not enough rental history
- Bad credit, evictions, collections
- Criminal conviction, drug manufacture
Completing your due diligence in selecting a quality and qualified renter for your investment property is time and money well spent to ensure a prosperous and healthy relationship for you and your renter in the future.
As always, feel free to call us @ (501) 404-0674 or shoot us an email @ [email protected] should you have any questions or concerns.
Don’t worry, we won’t try to pressure you into a sale. We’re here to help.