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For landlords, finding reliable tenants to live in your rental property can be a stressful task.
Asking for references, running background checks, verifying financial status, etc. all help you find the right candidates to rent out your property.
Throughout all stages of the review process, including the online application, phone calls, and potentially even in-person discussions, it is paramount that you as a landlord ensure that you are following all local, state, and federal housing laws.
As a landlord, there are several steps you can take to find the right candidates for your rental property. (iStock/iStock)
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Below are some expert tips for vetting potential tenants.
- Create basic requirements
- Include testimonials from past landlords in your application
- Conduct background and credit checks
- Consider a guarantor
- Prioritize federal, state and local laws
1. Create basic requirements
When accepting applications for your rental property, you should set out basic requirements that tenants must meet to be considered.
One common basic requirement to consider is the rental-to-income ratio. The rental-to-income ratio helps landlords make a good decision about whether a tenant will be able to live in the property and make payments on time.
The required rent-to-income ratio will vary from property to property, but as a general rule of thumb, landlords want their tenants to earn about two to three times the rent.
As a landlord, it’s important to set basic requirements that potential tenants must meet in order to be considered. (iStock/iStock)
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While this is ideal, it doesn’t take into account rising costs.
“What we’re finding since COVID is that the increase in the cost of living relative to people’s incomes hasn’t kept pace with the increase in rents,” Benjamin Jean, president of Keys Property Management in Florida, told FOX Business in a phone interview.
“Here in Southeast Florida, rents have gone up about 28 percent on average over a two-year period. Wages have not gone up 28 percent, so the rent-to-income ratio is pretty skewed. We’ve had applications coming in saying 60 percent of income goes towards rent, which is unacceptable to us, but certainly two to three times rent is within the comfortable range that most landlords want,” Jean said.
2. Include testimonials from past landlords in your application
When searching for new tenants, references from past landlords are invaluable.
Asking for multiple references from landlords during the application process is ideal to ensure the information matches up.
“On the application, we ask for the tenant’s two most recent rentals, who the landlords were, and their contact details, because we want to speak to the previous landlord,” Jean says. “The best way to vet someone is to talk to someone who has dealt with them. We always ask for two, because the previous landlord may want to evict the tenant and may give a favorable review to get them to leave, whereas the previous landlord no longer has a vested interest and is more likely to be honest about the tenant.”
Letters of recommendation are a great tool for landlords, and asking for multiple letters is especially helpful to ensure everyone gets the same message about the applicant. (iStock/iStock)
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If you are a first-time renter and have no previous landlord to act as a guarantor, referrals from people around you may be useful.
This could be a colleague or friend who can speak to the applicant’s character and qualifications to rent the property.
3. Conduct background and credit checks
When screening potential tenants, you will also need to conduct background and credit checks.
“Once they fill out an application, we run a thorough background check — we look at credit checks, criminal background checks, eviction history checks, if they’ve had any collections from previous landlords or businesses — to get a better idea of who they are from a financial standpoint, in terms of their payments,” Jean told FOX Business.
Jean also noted that pay stubs and bank statements will also be considered as means of verifying income.
Credit checks help landlords understand a prospective tenant’s financial situation before allowing them to move in. (iStock/iStock)
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4. Consider a guarantor
A cosigner or guarantor can help someone who is not qualified to rent housing on their own to get one.
As a landlord, one reason you might ask a prospective tenant to provide a guarantor on a rental agreement is if the tenant is young and has no rental history. People with little or no credit history may also be asked to provide a guarantor on a rental agreement.
“Depending on the property, they may ask for a guarantor or cosigner – someone who will co-sign the lease to ensure payments are made if the tenant is unable to pay. Often this is a parent or grandparent,” Jean said.
A guarantor provides a guarantee to the landlord that rent will be paid if the tenant is unable to pay the rent themselves. (iStock/iStock)
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A guarantor provides additional peace of mind for landlords because it means someone else will be responsible for paying the rent if the tenant is unable to pay.
5. Prioritize federal, state, and local laws
Throughout the screening process for potential tenants, it’s important to keep local, state, and federal housing laws in mind.
“Landlords must ensure they are in compliance with all federal, state and local laws at all times, including fair housing laws.” Geron Kelley, Partner at Kelley & Grant P.A. A man from Boca Raton, Florida, spoke to FOX Business in a phone interview.
According to the U.S. Department of Housing and Urban Development (HUD) website, the Fair Housing Act, passed in 1968, prohibits discrimination based on seven different factors: race, color, national origin, religion, sex, familial status and disability.
Another policy that homeowners should be aware of is something called “Disproportionate Impact,” which was issued by HUD in 2013.
Landlords must ensure they follow local, state, and federal housing laws when screening potential tenants. (iStock/iStock)
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“Previously, we could deny an tenant if they had a criminal record, and we could actually put ‘no criminal record’ in our ads,” Kelly explained. Now, he said, they can only deny an tenant “if the criminal record is severe enough that it affects the safety or security of the property or the neighborhood.”
“Landlords need to be fully aware that there is a myriad, diverse and patchwork of different rules and regulations governing background checks that are in place at the federal, state and local levels and they need to make sure they are in compliance with those rules,” Kelly said.
