THE PANDEMIC IS CHANGING HOW TENANT SCREENING IS CONDUCTED

At Real Property Management, we stress the importance of maximizing your rental portfolio. But what does this really mean in terms of tenant screening? Let’s take a look!

Understand the tenant’s “why”

When the tenant’s intentions are pure and genuine, you know you’ve got a potential tenant worth pursuing. Intentions are subconsciously understood and examined during tenant screening calls and property visits.

What are the tenant’s motivations for the lease?
Does the tenant intend on signing a long-term lease?
Why are they applying in the first place?

How much income for housing should be required from the tenant?

A generally accepted economic principal is that one-third of the tenant’s gross monthly income can go towards rent. Meaning, if the tenant gross’ CAD 3000 per month, rent payments should not exceed CAD 1000. Calculating the tenant’s rent to income ratio will ensure the tenant adequately budgets and prioritizes rental payments enough to bolster a sustainable lifestyle. If the tenant’s rent to income ratio drops below one-third, this is ideal!

Where is the tenant’s income coming from?

With Covid-19, income is not inflowing like it used to. Many people are receiving income from the government through subsidies, social assistance, and various programs, but ultimately, we do not know how long this is going to last. However, this should not be the end-all-be-all deterrent during tenant screening. Rather, examine the tenant’s income source once the tenant goes back to work – credit checks are especially important for this criterion.

What happens if a tenant’s income differs because they have switched jobs recently?

This can be a tricky topic to navigate as it is subjective to the individual investors and property managers. Looking at the two-year income average will provide an income indicator baseline. However, qualifying rates are usually based on the tenant’s current rate of pay.

Tip: Through talking with the potential tenant and running a credit check, ensure the tenant can pay the first month’s rent and security deposit.

What industry does the potential tenant work in?

Prior to Covid-19, this question may have been shoved aside and disregarded. Now, it may be one of the most important questions you ask during the process. For example, individuals working in the tourism industry may (currently) be experiencing greater financial difficulties.

Asking this question will indicate how transient the potential tenant may be. Meaning, does their industry and line of work require a shorter-term lease? Does the tenant have the potential to pick up and leave? All great things to consider when screening tenants.

Checking credit is SO important! ***

“History repeats itself. You have to know the history on this person [prospective tenant], not just the landlord reference history, but actual history” – Carla Browne

If you take one thing from this blog, it should be credit check, credit check, credit check! Got it? Great! Let’s chat about it though.

At Real Property Management, we refer to credit checking as “social scrubbing.” Meaning, credit checks tell a verifiable story of the tenant’s history with employment, on-time or late payments, public legal battles, and if they have been in the news publicly. It’s like a fuller picture dive into a person’s life – not just scrubbing their social medias.

Cross-referencing the tenant’s application to their credit report is crucial. Cross-reference and verify employment history, accommodations and housing history, and income to see if the application storyline matches the actual story.

What’s a good credit score?

A general baseline credit score is 650 or above, as this is an adequate indicator that the tenant can pay rent AND pay it on time. However, placing a solid indicator on a credit score number is subjective to the landlord and property management company. At Real Property Management, we understand a mishap may have previously occurred in the tenant’s life resulting in a bruised credit score. A credit score is not an all-encompassing factor that should deter the tenant from being approved.

Don’t forget about human rights violations!

As an investor or property management company, you must baseline how you screen tenants and document everything. This will aid you in avoiding discrimination and potential lawsuits. Outline your approach to credit checking, landlord references, tenant screening questions, the application process, etc. – it’s better to be safe than sorry. Plus, it provides peace of mind for tenants knowing each application is treated fair and equitable.

Landlord Reference

A crucial step in the tenant screening process is the landlord reference. The landlord reference provides further insight on the tenant, therefore, adding to the application storyline. Remember, it is not uncommon for tenants to put a friend or family member as a reference in this section, so keep this in mind.

Asking open ended questions will get the recipient talking, which will aid in your decision-making process. Remember to document the answers from the landlord. We will write an additional blog to assist in handling the landlord reference section of the tenant screening process.

Tip: In addition to calling the current landlord, call the second previous landlord. This way, you can get the full picture of the tenant’s intentions, accommodation reputation, and rental history.

What is your gut telling you?

“If something seems off, it probably is off.” – Carla Browne

At the end of the day, trust your gut. However, the gut instinct can become a tricky situation when it comes to human rights violations. If you go through all of the other components in the vetting process mentioned above, one factor will most likely be off as well, aiding in the decision-making process.

Conclusion

Once you’ve screened and placed the perfect tenant, the (sometimes) dreadful tenant screening process will make it all worth it. Placing the perfect tenant will help you maximize your investment, as it should minimize turnover and vacancy rates. In this case, short-term struggles equate to long-term rewards as an investor.