5 Simple Steps to Choosing the Right Tenants for Your Rental Property

A stable, long-term tenant who pays the rent on time is a dream tenant for a property owner but finding just the right person to fit the bill can be tricky. As you're screening applications for your next vacancy, keep these tips in mind to find the right tenants for your rental property.

1. Start with the Law

Landlords are subject to federal laws, as well as state laws and local ordinances designed to prevent discrimination against protected classes of people, especially when screening for housing tenants. Some of these protected classes include race, national origin, sex, disability, and religion, and your locality may have other specified groups. Before you even get started, be sure to familiarize yourself with local laws to make sure you comply.

2. Credit Considerations

Obtaining a credit history and income verification for your tenants is essential. This includes pulling a credit report, asking for copies of pay stubs, and contacting employers to verify length of employment, attendance, and earnings.

Not only do you want to be sure prospective tenants are earning enough to cover the rent, but also that they do not have existing obligations that would require a higher income. For example, if an applicant has a verified income of $4,000 per month for a unit with a $1000 per month rent, it may seem like a good fit. However, if his or her credit report shows debt payments exceeding $3,000 per month, you may be better off with a tenant with a lower income, but fewer obligations.

Lastly, you also want to check the credit report for late and missing payments, prior evictions, bankruptcies, and civil judgments that may highlight an unsuitable tenant.

3. Criminal Background Check

Criminal background checks are necessary to screen for tenants who may pose a danger to you or to other tenants, as well as applicants who may have a criminal history relating to payment frauds (i.e., writing bad checks). A thorough background check will include searches with federal, state, and county records along with a cross-reference of sex offender databases.

Keep in mind that the federal Department of Housing and Urban Development (HUD) along with some states have laws and guidelines for ensuring landlords who turn down applicants due to criminal history are justified in doing so. Rejecting an applicant with a violent criminal history is probably justified, but a repeat offender of parking laws may not be.

Obtaining accurate and complete criminal histories can often be difficult as there is no central record that's similar to credit history. It may be more efficient to contract with a company that already has the resources and relationships with courts and law-enforcement agencies to obtain these reports.

4. Rental Histories

Predicting who may or may not be a good tenant requires a bit of knowledge about previous rental history. To get a well-rounded picture, contact at least two of the applicant's previous landlords; if the current landlord is hoping to rid themselves of a problem tenant, he or she may not be upfront about problematic behavior.

The most important questions relate to the timeliness of payments, the reason for leaving, whether proper notice was given before terminating the lease, and whether there were any violations to the lease or property rules. You may also want to ask about damages to the current unit if available, neighbor complaints, and whether the applicant has made unreasonable requests or grievances.

If you're considering someone with no rental history, you may want to require a co-signer.

5. Other Considerations

Remember, you want to make sure your current roster of good tenants is also relatively happy with your decision, too. People who lie on their applications, are late to showings, seem unfriendly or uninterested, or refuse to authorize credit and background checks are probably not going to work out long-term.

Be sure to verify with your local laws and ordinances, but generally speaking, you can legally deny an applicant who is a smoker, doesn't earn enough, owns a pet (except service animals), has a history of property damage or unpaid rent, falsified the application, has low credit score, and for prior evictions.

The Perfect Fit

Finding the right fit for your vacancies can seem like a daunting process where you're turning down far more applications that you're approving. The extra time, however, is well-spent and the reward will be a safe, stable community, and a profitable venture.