Renting property is one of the simplest ways to create cash flow and build wealth for yourself, but being a landlord is more time consuming than most people imagine. You’ll need to spend time searching for the right property—so you can minimize risk and maximize your investment—take care updating and/or renovating it, then find the right tenants to bring in.
Many landlords accelerate the tenant screening process so they can get their property occupied as soon as possible. There are advantages to this; it reduces the amount of time your property stays vacant and gets your cash flow moving sooner. However, before you accept any new tenant, there are some important steps you should take.
Why It’s Better to Take Your Time
If you’re wondering why you need to take proactive action, rather than filling your property immediately, consider these benefits of more intensive tenant screening and preparation:
- Fewer vacancies overall. You might face a longer vacancy upfront, but you’ll end up with more reliable tenants who stay with you for a longer period of time. Ultimately, that means fewer and less intensive vacancies overall.
- More consistent cashflow. A reliable tenant will be more likely to send you payments, on time, every month, so you can build a more stable, consistent cashflow.
- Fewer liabilities. Taking the time to prep your tenant and prep your property also gives you a chance to limit your liabilities, keeping your property safe and making sure good people continue to occupy it.
What to Do Before Accepting a Tenant
So what steps do you need to take before bringing a new tenant into your property? These are a few of the most important:
- Check their credit score. First, you should know your tenant’s credit score, which is a direct indication of their financial reliability (and history). The three major credit bureaus—Equifax, TransUnion, and Experian—are your best source for this, and you can access your tenant’s credit score as long as you have their social security number and some basic information about them. A score of 650 or higher is considered to be a medium risk or lower.
- Run a background check. A credit score can tell you about a tenant’s financial history, but it won’t tell you much else about them. For more details, you should run a background check, to see any past criminal activity or evidence of other unwanted behaviors. You can browse through the best background check sites on the web, find the one that best suits your needs, and look your tenant up at your leisure.
- Run a home/property inspection. While your property is empty, take this time to run a quick inspection. Is your property currently up to code? Is it considered livable and clean? Are there any quick fixes, upgrades, or proactive repairs you can make before a tenant moves in? Now is the time to do it.
- Interview the tenant. It’s also a good idea to interview your tenant before you finalize your decision. You’ll want to see what type of person they are, how well they communicate, and how likely they are to get along with the neighbors. In general, the more willing a tenant is to communicate with you, the better. A positive, open demeanor can make up for even credit or background issues.
- Check their references. As an added protective measure, consider contacting the tenant’s references (and any past landlords they have listed on their application). You’ll probably get an accurate snapshot of what type of person this is, and whether or not they’ll make a good tenant for your property.
- Collect a security deposit. To protect your investment, you should collect a security deposit before your tenant moves in (to cover possible damages and ensure consistent payments). Some areas may have restrictions on what kind of security deposit you can ask for, but in most areas, twice the monthly rental cost (i.e., first and last months’ rent) is advisable. You may charge extra for pets or other special conditions.
If you perform all six of these steps and still feel comfortable with the tenant who’s available, follow through with the rest of the process. It may take you a few extra weeks, or even months, to find a good candidate, but you’ll end up saving time, money, and stress in the long term.