How to Choose the Right Tenants for Your Rental

Estimated reading time: 3 minutes

The key to having a successful rental property is in part, renting it, but you don’t want to rent it to just anyone. You want to find responsible, trustworthy tenants who will treat your property with respect. You may want to develop your own screening protocol for prospective tenants.

Here are some tips to get you started:

1. Take the Law Seriously 

As someone providing housing, it’s important that you follow the Fair Housing Act. The Fair Housing Act provides protection from discrimination to people engaging in activities related to housing. The act stipulates that you can’t discriminate based on:

• Race
• Color
• Nationality
• Religion
• Sex
• Familial status
• Disability

Some states and municipalities have their own fair housing laws, so check your local laws as well to ensure you’re compliant.

2. Conduct a Thorough Background Check

Make a copy of the prospective tenant’s ID and verify that they are who they say they are. Once you have their name and date of birth, there are a number of online services you can pay to run a criminal background check. You can also do this background check yourself, but it can be very time consuming and difficult to do well because of the lack of a nationwide criminal database. However, if you do decide to do it yourself, criminal information is public record, and can be obtained at various court houses.

Some offenses are more serious than others, so criminal activity isn’t necessarily a deal breaker, but it’s worth knowing about so you can evaluate the situation. California state law prohibits landlords from discriminating against applicants with a criminal past unless they can prove the crime committed presents a direct threat to the health and safety of other tenants or an inability to meet tenancy obligations.

3. Look for Tenants with Good Credit

You’ll want to find a tenant who is responsible with their finances. If they’re timely with their bills, it’s likely that they’ll be timely paying their rent too. Most services that run background checks can run a credit check at the same time. Many landlords ask applicants to pay the fee for the credit + background check. Don’t forget to check the report for prior evictions or bankruptcy filings.

4. Verify the Applicant's Income

Good credit is unlikely to mean much if your tenants don’t have a steady source of funds. Ask for pay stubs as proof of income, and call their employer to confirm employment and monthly income. Ideally, it’s best to look for a tenant whose income is at least 3 times the monthly rent. The longer the applicant has had their job, the less likely they are to be fired out of the blue and left unable to make rent.

5. Call the Applicant's References

Calling current employers and previous landlords should go a long way in illuminating how stable the prospective renter is and what kind of tenant they’ll be. Try to get ahold of more than one of the applicant’s previous landlords so you have a sense of how consistent or inconsistent their behavior as a tenant is likely to be.

6. Limit Occupancy to Two People Per Bedroom

State and local laws may vary, but under the Fair Housing Act, allowing a maximum of two people per bedroom to inhabit your rental is generally considered reasonable. As you might imagine, the more people you have in a rental, the more noise and potential wear they’re likely to inflict upon your rental property. However, there are a few exceptions pertaining to the occupancy such as the square footage of the housing and whether or not some of the residents are children. Additionally, all state and local housing codes must be followed.

After screening your prospective tenants, you should have a good sense of their character and ability to be a good tenant.

Have any questions about investing in real estate with your Self-Directed IRA? Download our 5 Steps to Investing in Real Estate Guide, or speak with an Entrust professional today.