A crucial part of leasing out a property is finding a good tenant—an investment in itself. Knowing how to screen potential tenants helps you find a responsible person who will respect you and your property. It also secures you a consistent source of rental income for a monthly cash flow you can depend on.
On the flip side, an unreliable tenant typically means missed rental payments, tedious eviction proceedings, and extra stress. That’s why it’s always in your best interests to properly screen tenants before signing them on.
This article from Ramfeld, experts in property management in Montreal, covers key tips for landlords on screening tenants and finding the best ones.
Key Takeaways:
- There are legal ramifications for questions you can ask potential tenants.
- Pre-screening involves background checks, credit checks, and income verification.
- A set process for denying applications makes this part of the process much easier.
- It’s important to know the red flags when screening tenants, including hesitation about background checks or delays in providing information about employment history.
Ensure You Understand the Fair Housing Act
The country’s Fair Housing laws prohibit tenant discrimination across several protected categories, such as race, religion, sex, familial status, disability, and national origin. Is your landlord-tenant screening process fair and unbiased? If not, you could get hit with an expensive discrimination lawsuit.
Below are some general guidelines on how to ensure a fair application process for your tenants:
- Create clear qualifying tenant screening criteria. This applies income, employment, credit score, etc., equally to all potential tenants.
- Double-check your screening questions. The applications should make no reference to an applicant belonging to a protected category.
- Review advertising materials. Remove words or phrases that target specific groups of people.
- Document all tenant correspondence. Having things in writing allows you to demonstrate a fair and unbiased process if need be.
Using a screening service for professional support also makes legal compliance in applications and other steps in the process simpler.
Legal Questions on Rental Applications
Fair housing laws heavily regulate what kinds of questions you can ask on rental applications and during tenant interviews to determine tenant eligibility. Your questions need to be objective and focused on a tenant’s ability to pay rent or abide by the rental contract.
Examples of questions you CAN ask during the application process include the following:
- What kind of pets do you own?
- Have you ever been evicted, and under what circumstances?
- What is your monthly income?
- Can you comply with the property’s rules and regulations?
Illegal Questions on Rental Applications
Discrimination laws are also crucial in knowing how to screen potential tenants. For example, you shouldn’t ask about a tenant’s inclusion in a protected category.
Examples of questions you CANNOT ask on a rental application include the following:
- What is your sexual orientation?
- Are you married or single?
- Are you disabled?
- Are you planning on starting a family?
- Do you have any health conditions?
The best practices for tenant selection stick to only questions that directly relate to the tenant’s ability to pay rent and abide by the rental contract.
How To Properly Pre-Screen Tenants With Your Application and Administrative Tasks That Follow
Rental applications are the perfect tool to gather basic identifying information about potential tenants that can help you make an informed decision about who to approach. The value of having a well-prepared application form is that it will also help you automatically disqualify undesirable tenants. That way, you can focus on choosing between the best.
Regardless of your property, a good rental application should include sections for the following information:
- General contact information: Name, phone number, email, and current address.
- Employment history: Previous employer, current employers, job titles, position durations, and income type (e.g., salary, hourly, contract, etc.)
- Previous rental history: Previous addresses, rental term, previous landlord contact info, and reasons for leaving.
- Character references: Past landlords, work supervisors, and other professional contacts.
- Consent forms: Credit and background checks
- Other information: Pets, vehicles, and additional property requirements
Online rental applications further streamline the process, making it easier to fill vacancies.
Perform a Background and Credit Check
Tenant background screening can notify you of previous criminal history or other issues. Credit inquiries help you determine a tenant’s financial situation and reliability. Both checks are important in ensuring reliability, though financial reliability is possibly the most important aspect.
To do a thorough job with these checks, consider the following:
Credit Score
Credit scores are a useful single number to estimate your prospective tenant’s reliability in making payments. The higher the credit score, the more financially reliable they are.
Minimum credit scores for eligibility are up to the individual landlord. Many prefer 700 or higher.
Debt-to-Income Ratio
Knowing how to screen potential tenants also requires looking at their debt-to-income ratio—their outstanding debt as a percentage of their monthly income. For example, a ratio of 10% means the tenant spends at least 10% of their monthly income on repaying debts.
All other things being equal, a lower debt-to-income ratio is better. It could indicate that the tenant has more disposable income available to manage your rental expenses.
Outstanding Debt
You should also look at the tenant’s total amount of outstanding debt.
Long-term debt could affect a tenant’s ability to make long-term rental payments, affecting your investment.
Payment History
A tenant’s previous rental history gives you a picture of how your own tenant-landlord relationship might go. Beware if that history includes late payments, missing rent, and existing delinquencies.
Ideally, a tenant should have a consistent history of timely payments.
Be Sure To Verify the Tenant’s Income
Can the tenant make consistent rental payments? Previous pay stubs or tax information could verify the tenant’s current income or employment, as could the following documents:
- Bank statements
- Social security statements
- Severance statements
- Unemployment statements
- Letter from employer
Typically, landlords stick to the “three times the monthly rent” rule. That is, a tenant’s monthly income should be at least three times your expected monthly rental charge. For instance, if the monthly rent is $1,200, any potential tenant needs to be making $3,600 or more a month (this is just a guideline).
Tips For Sending Applications Denial Letters
Sifting through all these applications also means having to deny all but one of them. Denying a candidate might be difficult, but it is a better option than renting to a bad tenant. It certainly beats the headache of going through an eviction process after months of non-payment.
The Financial Consumer Agency of Canada, a government agency, is equivalent to the United States’ Fair Credit Reporting Act. These regulations require a notice of denial letter if you used publically available consumer credit information to reach your decision about the tenant’s non-eligibility. An explanation for the denial and supporting evidence is important.
Understanding how to screen potential tenants includes some knowledge of potential legal reasons that you might deny a tenant application, such as:
- The prospective tenant’s income is not high enough
- Their credit history confirms a history of missed payments
- Their criminal history indicates rental risk
- There’s a past history of evictions, rental court proceedings, or disturbances
Red Flags to Look Out for When Screening Tenants
Interviews are a perfect opportunity to get to know your prospective tenants before entrusting your property to them. It’s in your best interest to be thorough in rental applicant evaluation measures, and some red flags are crucial when screening tenants, including the following:
- Ambiguous answers
- An inability to answer straightforward questions
- Inconsistencies or discrepancies in rental or employment history
- Denied consent for a background or credit check
- Unrealistic expectations about the property or rental contract
Common Myths About Tenant Applications and Tenant Screening
Does finding good tenants seem overwhelming? If you are a first-time landlord trying to fill a vacant property, dispelling the following common misconceptions about renting and tenant screening will help:
Myth 1: High Credit Score = Good Tenant
While a credit check for tenants is essential for judging finances, it’s not the entire story. A potential tenant might have excellent credit but cause problems with neighbours. A low credit score doesn’t necessarily mean a bad tenant, either, especially as many financially trustworthy younger people just haven’t had time to build a credit score yet.
Myth 2: You Don’t Need a Tenant’s Consent to Run a Background Check
Once you know how to screen potential tenants, it’s easy to mistake their simple act of applying to live at your property as a license for you to run a background check, but this isn’t true. As a potential landlord, you must receive explicit consent from people before running any background checks on them or risk invading the tenant’s right to privacy. That’s why using a screening service or experienced property management company helps to ensure the process complies with all the legal regulations and requirements.
Myth 3: You Should Always Avoid Vacancies
If you have a pressing property vacancy to fill, should you accept a less-than-ideal tenant? No, while a vacancy means you won’t be collecting rental income, it’s much worse if a bad tenant comes in, doesn’t reliably pay rent, and then requires you to start an expensive and time-consuming eviction process.
Myth 4: Tenants Can Cover the Screening Process
Landlords must take care not to contravene the Residential Tenancy Act by charging application fees. While this is standard practice in some parts of the United States, Canadian regulations generally prohibit landlords from charging rental applicants anything to cover their background checks or credit histories. If you’d like to double-check your area’s particular regulations, you could ask real estate industry experts like Ramfeld for assistance.
Myth 5: You Only Need to Verify One Reference
When screening applicants, you should never go with just one reference. Ask for at least three tenant references for a more comprehensive picture of the tenant’s finances and rental behaviours. Multiple sources help filter out bias, both positive and negative.
Consider Property Management Services and Solutions
Quebec’s Bill 31 (passed into law in February 2024) makes evictions costlier for landlords with additional requirements like reasonable moving expenses and other forms of compensation. Industry experts like Ramfeld can tell you more if your property is facing an eviction situation. However, avoiding this situation is ideal, and pre-screening tenants can make a huge difference.Are you a landlord who owns multiple properties? Why not outsource property management services to streamline operations and reduce overheads? Learn more about how to screen potential tenants from Ramfeld online or at (514) 745-6106, or explore the team’s integrated property management solutions for residential real estate!