With interest rates low, and rents on the rise, buying a rental property seems the perfect way to earn extra income, pay off a mortgage, save for the future. But being a landlord – just like any other business endeavor – involves time, hard work, and risks that can threaten the success of your investment.
The biggest threat: non-payment of rent that can result in costly evictions.
Happily, a business-like approach to finding tenants, can greatly reduce the risk of evictions. For some landlords that means hiring an excellent property management firm to make sure that tenants are reliable, take care of the property and pay their rent on time. According to Reuben Stone of Stone Browning Property Management of Barre, Vermont, protecting landlords begins upfront with the screening process.
If you are going to be your own property manager, you need to develop a process to help you distinguish excellent tenants from the rest. According to Stone that means you will need a thorough screening process, be prepared to check out references and verify employment and rental history.
Here are some guidelines for creating a successful screening process.
Have prospective tenants:
Fill out an application that includes rental and employment history.
Sign a consent form that allows you to get the applicant’s credit score, check criminal history, talk to applicant’s current and former employers, and current and former landlords.
Once you have the application, you should:
Obtain and analyze the applicant’s credit score. Stone’s excellent post “Analyzing a Renter’s Credit Score.” http:stonebrowningpm.com/blog/ underlines the importance of making sure that the tenant can afford the rent. Rule of thumb – 1/3 of monthly income for rent.
Check rental history with previous landlords.
Check employment with applicant’s boss to be sure he or she has a job, are likely to continue to have a job, and makes the salary claimed on the application. In some states employers can’t disclose an employee’s salary. But you can get an idea by asking if the salary the applicant claims is accurate.
Do a Criminal background check – HUD has a new regulation that you can’t deny an application on the ground of previous arrest records unless you have proof.
If you follow these steps for each applicant, you will be able to screen out undesirable tenants, find and keep tenants who pay on time and who take good care of your property. And, you’ll protect your investment from the cost of evictions.